As we look ahead in 2025, the skilled nursing sector is poised for both opportunities and challenges. The year will likely be driven by many factors including evolving supply and demand fundamentals, workforce pressures, policy changes, and capital market trends. Below are the key trends to follow in 2025.
Occupancy on the Rise
Expect continued occupancy increases as the number of occupied units rise and operational bed inventory declines. The occupancy rate for nursing care rose 0.2 percentage points to 84.5% in the third quarter of 2024 for the 31 NIC MAP Primary Markets. This marked the fourteenth consecutive quarter of occupancy gains, driven by net absorption of nursing care beds outpacing the amount of new inventory. Inventory has been declining due to factors including closed properties and the migration toward more private than semi-private rooms. In addition, the total number of occupied nursing care beds continues to increase, rising to more than 467,000 beds for the 31 Primary Markets in the third quarter.
Stable, but Uneven Reimbursement Rates
Medicaid funding is expected to remain stable, with some states projecting rate increases of 3% to 4%. Supplemental payments tied to quality of care will continue to be a significant factor in reimbursement as states expand these programs throughout the country. The Centers for Medicare & Medicaid Services (CMS) finalized a 4.2% increase in Medicare payments to skilled nursing facilities (SNFs) for fiscal year 2025. This translates to approximately $1.4 billion in additional Medicare Part A payments. While this increase is welcome news for operators, it is important to note that it may be partially offset by other factors such as elevated operating costs.
Active Acquisitions and Consolidation Cycle
The industry is likely to see continued consolidation, with disciplined acquisition strategies presenting opportunities for growth in 2025. This trend is driven by the need for operational efficiencies and the potential for organic growth in newly acquired properties. Well-performing assets will command premiums, while distressed assets may see increased interest for turnaround opportunities or even sales for alternate uses. Much of the consolidation is expected to be driven by smaller and/or underperforming operators that need to exit the business.
Expansion of Technology and Innovation
The industry is likely to see continued adoption of technology solutions to address staffing challenges, improve care quality, and enhance operational efficiency. This may include increased use of telehealth, remote monitoring, and AI-assisted care planning. Many believe AI has the potential to reduce routine administrative burdens, guide clinicians to better outcomes, and improve the quality of care.
More Favorable Regulatory Environment Possible
The recent presidential election has led to expectations of a more favorable regulatory environment. The federal minimum staffing mandate was finalized in April of 2024. An analysis by KFF estimated that only 19% of nursing facilities would meet the minimum hours per resident day standards under full implementation of the final rule. Many in the industry are confident that the incoming administration, along with the Republican majority in the House and Senate, will likely reverse the mandate. However, workforce challenges including the availability of labor, especially direct care staff, will continue in 2025.
Skilled nursing operators and investors must navigate a complex landscape in 2025 shaped by ongoing reimbursement changes, workforce shortages, and evolving care models. The winners will be those who prioritize operational efficiency, embrace technology, and strategically manage labor and regulatory challenges. The demographics provide long-term tailwinds, but success will hinge on adaptability and innovation in a constrained budget environment.