The Structural Pressures Behind Senior Living and Long-Term Care Distress

When a senior living or skilled nursing facility gets into financial trouble, restructuring professionals and lenders must account for the structural pressures faced by all long-term care facilities.

At the American Bankruptcy Institute’s Healthcare Program in Washington, D.C., in October 2026, Ryan Cochran moderated a panel, “Structural Pressures Driving Distress,” with senior living operators that discussed outside forces that strain all operators.

Here is what they covered.

Financial Pressures in Senior Living and Skilled Nursing

• Labor: Wage growth peaked at 5.9 percent in 2022, leveled out near 4 percent in 2024, and is expected to stay at 3–4 percent through 2026. Labor typically accounts for 50–60 percent of a facility’s budget, and in recent years wages have grown faster than reimbursement. High labor turnover and thin labor supply compound the problem.
• Borrowing costs: The effective federal funds rate climbed from near zero in early 2022 to 5.33 percent by mid-2023 and at the time of the conference sat at about 3.8 percent. Refinancing, repairs, and expansion all cost more as a result. When debt service costs more, there are fewer funds available for repairs and maintenance.
• Supply costs: Costs for drugs, supplies, food, energy, and cybersecurity are climbing faster than reimbursement. Raw food costs are up significantly.
• Reimbursement: Operating costs are outpacing reimbursement, and more Medicaid cuts are expected. Medicaid is the primary payor for long-term care in skilled nursing. Medicaid rates vary widely by state. Those rates reflect budget priorities, cost of living, and labor markets more than the actual cost of care residents need. In 2025, the five highest-paying states averaged $625 per resident per day in Medicaid reimbursement, while the five lowest-paying states averaged $247.

Each is significant on its own. Together, they create a structural trap.

Acuity of Senior Living and Skilled Nursing Residents is on the Rise

Fifteen years ago, skilled nursing admissions were a mix of frail seniors and patients recovering from a hospital stay. Now, residents arrive with more complex needs, including severe dementia, behavioral challenges, and high-tech care such as dialysis, tracheostomy care, and tube feeding. Today, total care dependency is the standard. The workforce is short on both training and numbers. Treating higher-acuity residents may result in more skin-integrity risks, workplace violence, falls, infections, and hospital readmissions, along with lower ratings and greater malpractice exposure.

CMS’s Five-Star Quality Rating System

Two components of the federal Five-Star rating, staffing and quality, can be strained by sicker residents and labor costs. A low rating impacts three areas:

• Admissions: Managed care organizations often require at least three stars before referring residents, and once one referral source is compromised, others often follow.
• Revenue: Medicare withholds 2 percent of fee-for-service Part A payments and redistributes it based on performance. Many state Medicaid programs and managed care plans also tie payments to quality.
• Lending: Lenders and the U.S. Department of Housing and Urban Development (HUD) use the rating to gauge risk.

Facility Maintenance

The average senior living facility is 24 years old. Deferred maintenance accumulates leading to code violations and prospective residents choosing competitors. Because margins are tight and lenders are often reluctant to finance repairs, facilities can find themselves without capital to fund needed repairs.

Takeaways for Restructuring Professionals and Lenders

Effort Alone Cannot Overcome Structural Pressures

Before proposing a fix, determine which structural pressures are impacting the bottom line.

Diagnosis Determines Treatment

Separate the pressures operators control from those they do not. Once identified, implement strategies to address these structural pressures.

Key Takeaways

1. Strong onsite leadership is necessary but not sufficient. Leadership from the boardroom to the bedside determines how well a senior living or skilled nursing facility manages its structural pressures.
2. Leadership cannot change a facility’s Medicaid or Medicare rates, its cost of debt, or the age of its building. It can decide how quickly the facility responds to those constraints: which deferred repairs get funded first, how rising labor costs are addressed before they compound, and how it recruits and keeps staff in a tight labor market. Before formulating a turnaround plan, test whether and how leadership is making those decisions now.
3. Every facility is unique, and financial metrics alone won’t reveal the operational causes behind weak results. Walk the halls to see how care is delivered and which daily challenges staff are managing. Speak with employees about problems they have raised without the resources to address. A plan built on these observations is more likely to be realistic about cost, timing, and the potential to improve financial performance, and staff are more likely to support it.

Thank you to the panelists Shawn O’Conner of Healthcare Management Partners, Marianne Potter of Villa Healthcare, and Heidi Trimble of Fundamental Healthcare Services for a great discussion.

This summary was prepared by the author based on the panel discussion and presentation materials. It reflects the author’s own interpretation and does not necessarily represent the views of the panelists or their organizations.

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The Health Law Advisor blog is currently edited by Emily Chi Fogler.