Nursing Home Construction Declines as Operators Cut Back Due to Lack of Medicaid Funding

The Future of Nursing Homes: Challenges and Innovative Solutions


The nursing home industry is facing a crisis with closures, downsizing, and construction challenges that limit access to much-needed care. With skyrocketing construction costs and low reimbursement rates, operators are finding it challenging to add Medicaid beds for low-income residents. Moreover, the recent pandemic has revealed staffing shortages and how nursing homes can quickly become overwhelmed. However, operators are finding innovative solutions to these challenges, such as financing options and renovations, to continue providing high-quality care.

The Challenge of Construction

New construction has become increasingly difficult for operators trying to add Medicaid beds due to low reimbursement rates, high construction costs, and limited financing options. According to the American Health Care Association, only three new nursing homes have opened in 2023, yet 579 closures have occurred from 2020 to the present. Also, construction costs are incredibly high, averaging $500 per square foot to build a new nursing home. This cost is magnified by the fact that operators are often replacing older facilities with limited revenue. The average operating margin in a nursing home is at a negative 17%, which makes it even harder to finance new construction.

Innovative Financing Options

Despite these challenges, some operators are finding creative solutions to finance new construction. Vivage Senior Living, for example, used a USDA loan and a city sales tax increase to pay for a small home model property with private rooms. The property was made up of 14 private rooms per house, totaling 56 beds. Other operators have opted for renovations to reduce costs and add beds to a given market. These solutions highlight how operators can use creativity and innovation to solve complex problems.

The Indigent Elderly Care Crisis

The nursing home crisis is even more pronounced for the indigent elderly and poor, who are usually on Medicaid. With limited financing, policymakers must focus on providing access to high-quality care to this population, which often falls through the cracks. The lack of affordable nursing homes can create a homeless population and further exacerbate the issue.

Alternatives to Nursing Homes

As the nursing home industry faces these challenges, individuals are seeking alternative care options such as continuing care retirement communities (CCRCs). CCRCs are able to care for higher acuity patients, downsizing their business structure to have one SNF bed for every eight to ten memory care or assisted living beds. Industry leaders are incentivizing the for-profit side to invest in these tax credits to solve the housing problem that Medicaid dollars cannot cover.


The nursing home industry is facing both construction and care challenges. New construction is especially difficult, with high costs, low reimbursement, and financing challenges. Savvy operators are turning to innovative financing options and renovations to solve these complex problems. However, the real crisis is access to affordable nursing homes for the indigent elderly and poor, highlighting the importance of innovative alternatives and policymakers’ focus on high-quality care for this population. By finding these solutions, we can provide the critical care needed by older Americans and maintain their dignity and independence.

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