Nursing homes are closing across the United States because most of them are losing money. In 2022, 51 percent of skilled nursing facilities operated with negative margins, meaning they spent more than they brought in. That’s up from 40 percent just a year earlier. The closures stem from a combination of underfunding, staffing crises, shifting consumer preferences, and insurance dynamics that together have made the traditional nursing home business model increasingly unsustainable.
Most Facilities Lose Money on Every Medicaid Resident
Medicaid is the single largest payer for nursing home care, covering the majority of long-stay residents. But Medicaid doesn’t cover the actual cost of that care. The median facility receives Medicaid payments equal to just 86 percent of what it costs to care for each resident. In dollar terms, the average facility spends about $239 per Medicaid resident per day but receives only about $200. That roughly $39 daily shortfall per resident adds up fast in a building with dozens or hundreds of beds.
Facilities have historically offset this gap with higher-paying Medicare and private-pay residents. But as those revenue streams have shrunk (for reasons explained below), the Medicaid shortfall has become harder to absorb. States set their own Medicaid reimbursement rates, and many haven’t adjusted them to keep pace with rising wages, food costs, and supply expenses. Facilities in states with the lowest rates face the steepest losses.
Medicare Advantage Pays Less Than Traditional Medicare
A growing share of Medicare beneficiaries are enrolled in Medicare Advantage plans, which are run by private insurers. This shift has significantly reduced what nursing homes earn from their most profitable patient group: short-stay rehabilitation patients covered by Medicare.
The numbers are stark. The average cost of an initial skilled nursing stay for a Medicare Advantage patient is about $10,874, compared with $17,141 for a traditional Medicare patient. That gap exists largely because Medicare Advantage plans authorize shorter stays: a mean of 19 days versus 30 days under traditional Medicare. Plans also negotiate lower daily rates. For nursing homes that once relied on 30-day rehab stays at full Medicare rates to subsidize their Medicaid losses, the rapid growth of Medicare Advantage has cut deeply into revenue.
The Staffing Crisis Raised Costs Dramatically
Labor is the largest expense in any nursing home, typically accounting for 60 to 70 percent of operating costs. The pandemic triggered a mass exodus of nurses and aides from long-term care. Many moved to hospitals, travel nursing agencies, or left healthcare entirely. Facilities that wanted to retain or recruit staff had to raise wages significantly, often competing with retail and fast-food employers offering comparable pay with less physically and emotionally demanding work.
At the same time, the federal government finalized new minimum staffing standards requiring nursing homes to maintain certain levels of registered nurse and nurse aide coverage around the clock. Many facilities, particularly smaller and rural ones, were already struggling to meet existing staffing levels. The mandate added compliance pressure on top of already elevated labor costs, with no corresponding increase in Medicaid or Medicare payments to cover the difference.
Fewer People Want Nursing Home Care
Consumer preferences have shifted decisively toward home and community-based care, and Medicaid spending has followed. From 2019 to 2021, Medicaid spending on home and community-based services grew 18.4 percent, rising from $97.1 billion to $115 billion. Over that same period, spending on institutional care (primarily nursing homes) fell 7.2 percent, dropping from $72.1 billion to $66.9 billion.
The number of people using institutional services fell by 18 percent during that window, from 1.8 million to 1.5 million. Some of that decline reflected pandemic-era reluctance to enter congregate settings, but the trend predates COVID and has continued since. States have actively expanded home-based alternatives, and most older adults prefer to remain in their own homes when possible. For nursing homes, this means fewer beds filled, and empty beds still carry fixed costs like mortgage payments, utilities, insurance, and minimum staffing levels.
Rural Areas Are Hit Hardest
Rural nursing homes face all of the same financial pressures as their urban counterparts but with thinner margins, smaller patient populations, and far fewer alternative revenue sources. The results have been devastating for access to care. From 2008 to 2018, over 40 percent of zip codes that lost a nursing home were in rural areas. And 91 percent of new “nursing home desert” counties, places left with no nursing home at all, were rural.
When a rural nursing home closes, families face distances that would be a minor inconvenience in a city but a serious barrier in a rural county. In rural zip codes that experienced closures, the average distance to the nearest nursing home offering long-term care was 7.2 miles, compared with less than one mile in urban areas. That gap is even more significant for older adults who no longer drive and for families without reliable transportation. Closures also increased distances to home health agencies and hospitals with swing beds, further limiting the options available to rural seniors.
Ownership Structures and Financial Strain
The financial picture varies widely from facility to facility. While the median nursing home had a margin of negative 0.5 percent in 2022, the bottom quarter of facilities had margins of negative 9.5 percent or worse. The top quarter, by contrast, maintained margins of 6.6 percent or higher. That spread reflects differences in payer mix, local labor markets, building age, and ownership strategy.
Private equity and corporate ownership have complicated the landscape. Some corporate owners have used complex real estate arrangements where the operating company pays rent to a related property company, extracting profit even as the facility itself appears to lose money. When financial conditions tighten, these structures can make it easier for owners to close a facility and sell the real estate rather than continue operating at a loss. Nonprofit and government-owned facilities, which often serve a higher share of Medicaid residents, lack that exit option and face slower, more painful financial deterioration.
What This Means for Families
For families searching for nursing home care, closures mean fewer choices, longer waitlists, and potentially longer drives to visit a loved one. In areas where multiple facilities have closed, the remaining homes may be operating at or near capacity, reducing your ability to choose based on quality ratings or proximity. Rural families are increasingly turning to home-based care not by preference alone but because institutional options have simply disappeared.
The fundamental problem is structural: the largest payer (Medicaid) reimburses below cost, the fastest-growing payer (Medicare Advantage) reimburses less than traditional Medicare, labor costs have risen sharply, and consumer demand is migrating toward home-based alternatives. Until reimbursement rates reflect actual care costs, closures will likely continue, with the most financially vulnerable facilities in the most underserved communities closing first.