How Medicaid Rate Reform is Driving Skilled Nursing Growth in 2025

As we continue into 2025, it is important to stay keenly aware of Medicaid rate reform and its implications on the skilled nursing industry. Managing Director Steve Munn provides insights on what VIUM is most excited about as the industry enters a promising new year. From rising skilled nursing occupancy to the impacts of Medicaid rate reform, he highlights how VIUM continues to support providers and operators with innovative financing strategies.

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What is VIUM expectant to see in this new year?

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We are seeing several positive tailwinds in the SNF industry regarding deals and financing strategies. We have seen a lot of Medicaid rate reform and reimbursement changes over the last twelve to 18 months in several states which has increased profitability and made financing options more achievable for Sponsors. At the same time, skilled nursing occupancy is higher than pre-pandemic levels for the first time and we are finally reaching  what is being called the new normal. The increased state-level reimbursement in a lot of states has been critical for providers in the industry. We believe we will continue to see the legislative efforts and the lobbying efforts, at the state level, for those states that may be lagging behind on Medicaid reimbursement.

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There is also growth in the states that have already been proactive with those increases. Kentucky, Ohio, and Pennsylvania recently passed increased rates that went public. It is a state by state situation; some states still have work to do. VIUM continues to support our clients in those states through lobbying efforts and connections with our partners. We are excited for the next 24 months in our sector. The industry as a whole has seen a great response coming out of the pandemic, which I know everyone is very bullish about but there is more work to be done.

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How is VIUM supportive in a partnership role with providers who are looking to transact in 2025? 

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Skilled nursing facilities recently hit pre-pandemic levels for occupancy, but that is not to say that the last 12 months were not difficult for our industry. When we look at transactions, whether it be an acquisition, refinance, or a recapitalization, we work hard to get creative with underwriting. Because of the ever changing operational environments, we do not want to look at only twelve months in all cases because we know January 2024 was a much different operating environment than January 2025. So from an occupancy perspective, we are looking at a facility’s latest census and latest payor mix, and we give clients credit for what is taking place today. Many times, those statistics are more recently available than financials.

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For example, if we can see that in January you are at an all time high in census, and we only have November financials, in some cases we want to give the borrower credit for that on the underwriting side and be proactive, understanding that as we go through this process, we will continue to see those increases flow down to the bottom line. That is a real benefit that we have at VIUM with our bank partner; being creative with underwriting, and not just looking at the last twelve months as a single period, but understanding that there is a story here in the industry. It will flow through the numbers at some point. We want to get the most attractive financing based on our clients’ success today.

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What is currently enabling projects to be financed?

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A continued focus on expense management and revenue growth has been very important. We strive to attract and partner with providers who operate well, where their focus is on their current portfolio, and they grow methodically and responsibly. Those are the partners who have experienced great success. It is always exciting to buy a new building, but we share with our clients that the first three months are extremely important for them and for VIUM. The bridge loan, the acquisition, and financing – that is step one. 

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We know everyone, in most cases, wants to get to HUD in the long-term. That is the gold standard - getting the facility tucked away with fixed-rate, fully-amortizing, non-recourse debt. Gaining solid footing those first few months after the bridge loan is key to getting to HUD as quickly as possible. Those are the projects that we see continue to perform well. 

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Gain more insights from VIUM resources.

What forecasted trends are you seeing that set the healthcare sector apart from seniors housing?

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It really boils down to the Medicaid rate reimbursement. A lot of these buildings are 70 to 80% Medicaid population. The rebasing that has occurred in many states has provided almost an immediate value add overnight. Over the last twelve months, the industry has started to  stabilize at a new normal expense level. We have seen agency utilization come down, and expenses have finally leveled. Conversely, over the last three to four years, we saw expenses increase rapidly, and when the government is your largest reimbursement source, it takes time for the revenue growth to catch up. Now that those Medicaid rates have increased in some states, the top line revenue growth is flowing to the bottom line.

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For some, almost overnight you have a healthcare project that is break-even and it can become appropriately profitable. Many lenders, including VIUM, are comfortable with the understanding that you are operating at a stabilized expense level and the increased reimbursement is for past expense growth. Unfortunately, on the seniors housing side, while you have seen a lot of work to build out the Medicaid Waiver programs in states, it is still significantly private pay. Pushing through rate increases is tough to match your expenses. For example, in Kentucky we are seeing $75 to $80/day Medicaid rate increases, which is upwards of 30%. It is challenging for the seniors housing industry to go to a resident and demand a 30% rent increase to their monthly rent.

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There is continuing supply growth in the seniors housing market and competition is tough. So seniors housing still has room for improvement from a revenue standpoint and catching up to that expense growth, but it certainly will not be easy for operators. Whereas in the SNF sector, based on the nature of the reimbursement, it happens almost overnight from a state-level, which allows those partners to return to operating margins they have not been able to achieve since pre-pandemic. Lenders can get comfortable with that being the go forward because of the revenue source and immediate implementation of new rates. It is not market demand; instead, it is just coming from the Medicare and Medicaid programs.

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What are the value ads that VIUM brings to healthcare transactions? 

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The biggest benefit is that this is all we do – seniors housing and skilled nursing. Collectively, we have decades of experience combined with our leadership, and since VIUM’s inception, we have deployed a tremendous amount of capital in the space. We have been on this ride with our clients and I think being in it every day has allowed us to become even more versatile and able to adapt to the market and support our clients in different ways. 

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Another major advantage we have is how we are structured. Medicaid is a state by state program. For example, Texas and California could not be more different. In our platform, our originators are regionally focused which allows us to really hone in on states and market, local relationships, and have boots on the ground to understand the legislative impact of the Medicaid rate. Having that focus has allowed us to adapt quicker and understand the sector at the local level, which we can then underwrite to, and provide more successful financing outcomes for our partners.

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Finally, we are truly a one-stop shop for debt financing. We offer bank bridge financing, as well as HUD financing. It is direct and relatively seamless. That is arguably our single biggest competitive advantage.

As we embrace the opportunities of 2025, VIUM Capital remains steadfast in its commitment to supporting providers and operators in navigating the evolving healthcare landscape. With a deep understanding of state-specific Medicaid reforms, skilled nursing occupancy trends, and innovative financing strategies, VIUM is uniquely positioned to deliver tailored solutions that drive success. Contact us today to learn more about how we can serve as a valuable partner to your organization.