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The nursing home sector is in a structural squeeze. Medicaid, the dominant payer, reimburses below the cost of care by a documented margin. Medicare, which historically offset those losses, is shrinking as a revenue source. And the One Big Beautiful Bill Act (OBBBA) is expected to widen the gap further — freezing provider tax growth, cutting state-directed payments from 2028, and shortening retroactive coverage in 2027. Unless states backfill the difference, the shortfall grows.
That shortfall means exactly what it sounds like: the difference between the cost of providing care and the money received to provide it. For facilities already operating on thin or negative margins, a widening gap has a predictable consequence. More than 96 labor and delivery units closed between January 2024 and May 2026, 62% of them in rural areas. In New York, a recent survey of nonprofit nursing home providers found over 50% are considering closing or selling within five years.
For investors looking at this sector, the question is not whether the storm is real. It is where the safe ground is.
Where the Risk Sits
Private equity ownership has a documented track record of harm — and regulatory risk.
A 2021 National Bureau of Economic Research study found patient mortality is 11% higher at private equity-owned nursing homes. PE ownership is associated with a 12% decrease in registered nurse hours, 4.4% fewer nurses, 25% higher in-hospital complications, and 10 times greater bankruptcy risk. A systematic review concluded that PE ownership is linked to reduced CNA and LPN hours, increased deficiencies, mortality, and hospital visits post-acquisition.
The risk for investors here is not just reputational. States are watching. Connecticut’s comptroller is actively pushing to ban private equity ownership of hospitals. Regulatory scrutiny of PE-owned nursing homes is rising, and the financial model that made PE expansion attractive — cutting staffing, extracting fees, relying on public reimbursement — is under a spotlight.
Facilities with thin Medicaid margins and no diversified revenue are the most exposed.
The Medicaid shortfall is not evenly distributed. It is largest at well-staffed and nonprofit homes — meaning the facilities investing most in care recover the smallest share of their Medicaid costs. In New York, from 2007 to 2024, the cost of providing care rose 51% while reimbursement rose 12.8%. Nonprofit homes in the state lose an average of $150 per resident, per day.
Where the Opportunity Sits
1. Nonprofit partnerships with experienced operators
The AgingIN and Southern Administrative Services partnership is one model. AgingIN retains ownership and mission; SAS provides operational expertise and access to capital. The structure allows a nonprofit to avoid selling to a private equity buyer while still accessing the resources needed to operate sustainably. Their Green House skilled nursing community in Savoy, Illinois, was approved by the state in under a year, using a blend of HUD FHA 232 loans, public fixed-rate bonds, private placements, and traditional bank loans.
SAS states that “small house and Green House models can deliver exceptional care with good financial results, while still accepting all payor sources, including Medicaid”. That is the key sentence for an investor: this model accepts Medicaid patients while targeting financial sustainability.
The opportunity: capital preservation with mission alignment. The constraint: capital intensity and scale. This model requires upfront investment and cannot replace existing capacity overnight.
2. Institutional Special Needs Plans (I-SNPs)
I-SNPs are a Medicare Advantage model for individuals requiring institutional-level care. About 130,000 individuals are enrolled, roughly 85% of whom reside in nursing homes. About one-third of nursing home residents now live in facilities that participate in or offer an I-SNP.
The financial structure is more predictable. I-SNP arrangements can provide per-member-per-month models, value-based care incentives, and shared savings arrangements. The clinical data is strong: compared with non-I-SNP populations, residents enrolled in I-SNPs experience lower mortality rates, fewer readmissions, and fewer emergency department visits.
The opportunity: predictable revenue, improved outcomes, alignment with value-based care. The constraint: I-SNPs cover about 12% of Medicare nursing home residents, and growth depends on insurer participation and facility willingness to contract.
3. PACE (Programs of All-Inclusive Care for the Elderly)
PACE is described as “the most cost-effective, community-based alternative to nursing homes” and is the only state program specifically designed to serve this population. ArchCare, a New York-based nonprofit, operates PACE alongside its nursing home and home care services.
The opportunity: capitated payment models that reward keeping people out of institutional care. The constraint: PACE is community-based and does not replace the need for skilled nursing beds for high-acuity residents.
4. Value-based purchasing and accountable care — with a caveat
The Medicare SNF Value-Based Purchasing program withholds 2% of Medicare payments and redistributes them based on performance. MedPAC has recommended that it be replaced, noting the incentives “may be too small to change behavior”. High Needs ACOs exist for beneficiaries with complex conditions, but there were only 13 such ACOs in 2024.
The opportunity: alignment with quality incentives. The constraint: the incentives are currently too small to offset the Medicaid shortfall, and the infrastructure required to participate is beyond the reach of many small operators.
The Questions an Investor Should Ask
The data does not prescribe an answer. It raises questions that any investor considering this sector should weigh:
- Does the model accept Medicaid, and if so, what is the documented reimbursement gap in that state? The shortfall varies by state, and some states backfill more than others.
- What is the staffing model, and how does it compare to the documented harm associated with PE-owned facilities? The evidence on PE ownership and mortality is specific and measurable.
- Is there a partnership structure that preserves mission while accessing capital? The AgingIN-SAS model is one example, but it is not the only one.
- What is the regulatory trajectory in the state where the facility operates? Connecticut is moving toward banning PE ownership of hospitals. Other states may follow.
- What happens to the residents if the facility closes? The data does not answer this question. It only documents that closures are increasing.
Who Benefits: Operators and investors who adopt models with better staffing and care coordination; nonprofit organizations that can preserve mission through partnerships; communities that retain access to care.
Who Is Harmed: Residents in facilities where cost-cutting models have reduced staffing and worsened outcomes; operators in states with the largest Medicaid shortfalls who face closure or sale; communities where nursing home closures disrupt access to care.
Closing Question: If Medicaid reimburses below the cost of care, and private equity models have produced measurable harm, what would a sustainable funding model for nursing homes actually require — and what becomes of the seniors in communities where no such model exists?
Sources
Pease Bell, “The Gap Nobody Budgets For: Medicaid reimbursement vs. the real cost of nursing home care” (October 22, 2026)
LeadingAge New York, “State Lawmakers and Nonprofit Nursing Home Providers Are Sounding the Alarm on Growing Funding Crisis” (March 19, 2026)
LeadingAge New York, “2026-27 Health/Medicaid Testimony” (February 10, 2026)
ArchCare, “State Fiscal Year 2025-26 Testimony for the Joint Legislative Budget Hearing on Health” (February 10, 2025)
ScienceDirect, “The effects of private equity ownership in U.S. nursing homes quality and financial performance: A systematic review” (July 18, 2025)
National Bureau of Economic Research via Connecticut General Assembly, “Private Equity Ownership and Nursing Home Quality” (February 19, 2026)
Skilled Nursing News, “Inside PE’s ‘Financial Gamesmanship’: PE-Owned Nursing Homes Face 10 Times Greater Bankruptcy Risk, Higher Mortality” (March 10, 2026)
AgingIN, “AgingIN and Southern Administrative Services Partner to Help Sustain Nonprofit Skilled Nursing Communities with Comprehensive and Creative Options” (August 11, 2026)
McKnight’s Long-Term Care News, “From reactive to proactive care: The I-SNP difference” (October 5, 2026)
MedPAC, “Report to the Congress: Medicare and the Health Care Delivery System” (June 2025)
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