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Operating a nursing home entails the duty of caring for residents by providing clinical assistance and documenting that care using long term care software. But beyond these basic tasks, leaders in long term care must strive to provide a high quality of life by creating a comfortable, home-like environment, and organized social activities, thus demonstrating a genuine concern for the everyday well-being of residents.

insurance policy paper that is used in nursing home business
The nursing home business largely relies on government support.

The practices for running a long term care facility are highly regulated on both state and federal levels. Therefore, facilities must employ and retain knowledgeable staff who understand the intricacies of providing excellent resident care while complying with government-enforced standards.

Financially, though, there are a different set of concerns that impact the daily operations of a nursing home business, consequently affecting the profitability of a long term care facility. In particular, non-profit organizations may find it difficult to balance the books. KJ Page, the executive director of Chaparral House, recently described conducting “different types of caregiving work with the same bucket of money but without the support from a corporate office.” She explained how she manages “pulling one cent from here, two cents from there” while still “managing pretty well.” You can listen to her interview on the LTC Heroes podcast below:

How Much Do Nursing Homes Make?

An aging American population has begun to impact the level of care in long term care facilities; nursing homes must learn to expand both their services and parameters in line with an increased demand. Approximately seven out of ten people aged 65 or older will require long term care at some point, making the cost of long term care a growing concern for the government and the families of elders.

nursing homes rates are outpacing inflation
How much do nursing homes make? Ultimately, only the owners know.

It is difficult to pinpoint just how much do nursing homes make because the overall profits are only known only to the facility owners. However, between 2004 to 2020, the cost for long term care services increased significantly from 1.88% – 3.80% per year. Meanwhile, a private room in a long term care facility is now $2,542 more expensive per year.

The increased rates charged in long term care facilities are outpacing the U.S. inflation rate of 1.8%, according to the United States Department of Labor Bureau Statistics. Therefore, one can assume that the nursing home business is, at the very least, a lucrative business for facility owners.

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What Impacts Nursing Home Profit Margins?

One of the biggest things that impact nursing home profit margins is reimbursement payments from the government, mainly from Medicaid and Medicare. In the podcast, Page pointed out an important distinction between the two payor sources: Medicaid payments are “a set amount that’s never going to increase,” while Medicare “increases according to the medical needs of the person.” 

Approximately one in six (16.5%) long term care residents rely on Medicaid to contribute to the expenses for services related to their daily needs. Medicaid is a big player in the nursing home business, mainly because the daily amount for Medicaid reimbursement is approximately $200 per resident. However, facility owners argue this amount is not enough to offset their costs, especially after factoring in overheads like providing around-the-clock care, three meals a day, medical services, and staff payroll.

The nursing home business is dependent upon care.
There is a strong correlation between Medicaid occupancy and reduced nursing home profit margins.

Here one may ask if the nursing home business is lucrative. If so, how much do nursing homes make? Research shows that facilities with high Medicaid occupancy rates typically have lower professional standards, lower quality of care, and lower profit margins. This can be seen in Pennsylvania, where, between 2007 to 2014, the total profit margins for for-profit, skilled nursing facilities decreased by twenty-eight percent.

Data gathered by Avalere Health shows there is a higher correlation between Medicaid occupancy rates and lower profit margins. Research also demonstrates that while nonprofit facilities prioritize their resident’s and staff’s general well-being more, they invariably have fewer complaints and provide a higher quality of care.

Meanwhile, for-profit, investor-owned facilities are more likely to have poorer resident outcomes due to fewer resources and reduced budgets. Instead, the money is funneled into personal profits and covering corporate overheads, all of which make for lower quality of care, negatively impacting the nursing home profit margin.

What Really Matters in Nursing Home Business

While the nursing home business can be quite lucrative, it is essential to remember that quality of care to residents should be the priority, and not higher profit margins. And, according to Page, quality of care stems from staff satisfaction, “because if the staff are unsatisfied, the residents will also be unsatisfied.” Resident dissatisfaction then trickles down to family members, who will file complaints upon seeing their loved ones unhappy. “The three are very interchangeable, like the three Olympic loops. They’re all tied together,” said Page.

It, thus, is crucial that leaders of long term care facilities emphasize care and let their better outcomes improve profitability, not the other way around. The reality is that—in keeping with the mandates of the Affordable Care Act—there is such great transparency in long term care today that facility owners and operators have no option but to listen to the needs of their residents and staff. So regardless of one’s incentive—serving elders or turning a great profit—the best option is always to emphasize care.

For more on recent trends in long term care, read our blog and subscribe to the LTC Heroes podcast.