Skilled Nursing Facility Feasibility Study: Payer Mix, Staffing, CON and Financing

A skilled nursing facility feasibility study tells a lender whether one nursing home, built, expanded or bought at a stated cost, can fill its licensed beds with the right mix of Medicare, Medicaid and private residents, staff them as federal and state rules require, and still pay its debt at the coverage the capital source sets. It answers with public program data, the state's bed rules and the operator's own record, because in this asset the payer, the regulator and the survey agency decide more of the outcome than the building does.

Four facts frame almost every skilled nursing loan file:

• Medicaid pays for most days, Medicare pays the most per day. On 2024 cost reports, Medicaid covered 54.7% of inpatient days and Medicare 10.0%, yet the Medicare prospective payment averaged $696.35 per Medicare day against $381.38 of net patient revenue per patient day across all payers [1]. A few points of mix move coverage more than a few points of occupancy.
• Margins from patient care are thin. Half of the 12,955 reports with usable financials (51.1%) showed a loss on patient care, and the median report sat at -0.2%. Other income lifted the aggregate net margin to 2.4% [1].
• Beds are rationed in much of the country. Many states require a certificate of need before beds are added or a home is built, and HUD will not insure a nursing home mortgage without the state's certification of need where an authorized agency exists [2][3].
• The staffing rule changed again. The 2024 federal minimums of 3.48 total nurse hours, 0.55 registered nurse hours and 2.45 aide hours per resident day were repealed effective February 2, 2026, after Congress barred their enforcement until September 30, 2034 [4].

This page covers new construction, bed additions, replacement facilities and acquisitions. For private-pay senior care, see the senior housing feasibility study and assisted living feasibility study pages; this page stays with licensed nursing beds that bill Medicare and Medicaid.

Every study ends in one of three conclusions: feasible as proposed; feasible with stated conditions, such as fewer beds, a funded operating reserve or a named operator; or not feasible as proposed, with the changes that would make it work.

What is a skilled nursing facility feasibility study?

It is an independent analysis, written for a credit file, of whether a proposed or existing skilled nursing facility can support the financing requested. USDA's rule describes a feasibility study as a report by an independent qualified consultant "evaluating the economic, market, technical, financial, and management feasibility of the proposed project or operation" [5]. Those five parts make a sound outline for any lender, and this page follows them.

Federal law treats one building in two ways. The long-term care requirements in 42 CFR Part 483 implement sections 1819 and 1919 of the Social Security Act [6]. A home certified under the first is a skilled nursing facility for Medicare; a home certified under the second is a nursing facility for Medicaid. Most homes hold both certifications. In the October 2026 CMS provider file, 13,904 of 14,686 listed homes were certified for Medicare and Medicaid, 537 for Medicare only and 245 for Medicaid only [7]. The certification decides which payers the study may count, so the study names it first.

A skilled nursing unit can also sit inside a larger institution as a distinct part, which must be "physically distinguishable from the larger institution or institutional complex that houses it" [8]. The study treats it as its own unit, with its own beds, staff and payer mix.

A feasibility study is not an appraisal. An appraisal estimates value at a date; the study tests whether the project works and under what conditions. Lenders often need both. The feasibility study versus appraisal page explains the split, and the feasibility study versus business plan page explains why a sponsor's plan does not replace an independent test.

Exhibit 1. Skilled nursing projects the study must tell apart

Source: FSC classification of project types; rules as cited in each row.

What must the study prove to a lender?

It must prove that the beds can be licensed, filled, paid for and staffed, and that what is left pays the debt. Each of those is a separate test with its own evidence. A study that proves demand but skips bed authority, or proves revenue but skips the staffing build, leaves the lender to finish the work.

Lenders read the study in order: are the beds allowed, is there demand that will pay, can the home be run within the rules, and how much debt does the cash flow carry under stress. A fault early in that chain makes the later numbers moot.

Exhibit 2. The questions a lender's analysis asks of a skilled nursing study

Source: FSC framework; rules and data as cited in each row.

The study tells the lender where the project is strong, where it is thin, and which conditions would close the gap. The bankable feasibility study article explains what makes a report usable in a credit file, and the lender requirements article compares what bank, SBA and USDA reviewers expect.

How large is the U.S. skilled nursing sector?

It is a sector of 14,686 certified homes, most of them owned by for-profit operators and run as part of chains. The October 2026 CMS provider file lists 14,686 homes with 1,567,009 certified beds and an average of 1,253,790 residents a day, which puts occupancy at 80.3% [7]. For-profit owners hold 10,885 of the homes (74.1%), nonprofits 2,853 and governments 948, and 69.6% of homes carry a chain identifier [7].

Each certification group has its own payer base and staffing profile. Medicare-only homes are small (a median of 45 beds), staff heavily and rate well, which fits a short-stay model.

Exhibit 3. Certified nursing homes by certification, October 2026

Source: CMS Nursing Home Provider Information, October 2026 file [7]; FSC tabulation of all 14,686 listed homes. Occupancy is average residents per day divided by certified beds.

For-profit homes are larger than nonprofit homes, more often part of a chain and staff fewer hours per resident day; nonprofit homes staff more hours and carry higher ratings; government homes run the lowest occupancy. Ownership tells the study which comparison set to use for staffing and census.

Exhibit 4. Nursing homes by ownership, October 2026

Source: CMS Nursing Home Provider Information, October 2026 file [7]; FSC tabulation. HPRD is reported hours per resident day; chain status is a non-blank Chain ID.

Size is the next cut. Homes under 50 beds staff the most hours and carry the highest ratings; homes of 100 beds or more hold most of the beds and most of the chain operators. In this file, only 22.8% of all homes with reported staffing met all three of the repealed 2024 hour levels. The share is highest in the smallest homes and lowest in homes of 100 to 199 beds [7]. That spread is the reason the study builds staffing from the subject's own plan rather than from a sector average.

Exhibit 5. Nursing homes by certified bed count, October 2026

Source: CMS Nursing Home Provider Information, October 2026 file [7]; FSC tabulation. "Met all three 2024 levels" counts homes whose reported hours reached 3.48 total, 0.55 RN and 2.45 aide hours per resident day, the repealed 2024 minimums [4].

The Economic Census counts the business side. In 2022, nursing care facilities (NAICS 623110) had 10,663 employer firms, 17,951 establishments, $135,396,289 thousand of receipts, $57,604,622 thousand of annual payroll and 1,392,818 employees [24]. Payroll alone equaled 42.5% of receipts, before benefits and contract labor. Tax-exempt operators accounted for 1,554 firms, 2,446 establishments and $22,180,815 thousand of receipts [24]. The establishment count is higher than the CMS count of certified homes. The two sources count different populations, so the study uses CMS for certified supply and the census for industry ratios.

The same census breaks receipts out by payer, which gives a lender a revenue view to set beside the day counts on cost reports. Medicaid fee for service was the largest single payer, Medicare fee for service the second, and private insurance and residents' own payments made up most of the rest [25].

Exhibit 6. Nursing care facility receipts by payer, 2022

Source: U.S. Census Bureau, 2022 Economic Census, receipts by type of payer, NAICS 6231 nursing care facilities, all establishments [25]. Listed lines sum to 99.2% of total receipts; the remainder is not shown in the release.

The Medicare and Medicaid lines are fee for service only, so managed care payments are not in them, and the listed lines do not add to the total. The study uses Exhibit 6 for the shape of the revenue base, not as a rate source.

Where does skilled nursing demand come from?

It comes from two streams the study sizes separately: short stays after a hospital discharge, mostly paid by Medicare and insurers, and long stays for residents who can no longer live at home, mostly paid by Medicaid and by residents themselves. A home's payer mix is the result of how much of each it captures.

The base is the oldest population. The Census Bureau's Vintage 2025 estimates put the civilian population aged 75 and over at 27,928,937 in July 2025, up 23.0% from 22,707,133 in 2020, and the population aged 85 and over at 7,041,036, up 11.4% from 6,317,882 [18]. Against that base, the 50 states and the District of Columbia held 56.1 certified nursing home beds per 1,000 residents aged 75 and over and 222.5 per 1,000 aged 85 and over [7][18]. Those ratios are a screen, not a demand model: they show where beds are scarce, not who will pay.

The short-stay stream is set by Medicare's coverage rules. A beneficiary qualifies for the skilled nursing benefit after a hospital stay of "at least 3 consecutive calendar days, not counting the date of discharge" [26], and must need skilled nursing or rehabilitation "on a daily basis" [27]. Coverage runs up to 100 days in each benefit period, with Medicare paying all covered services for the first 20 [28], and the resident paying a daily coinsurance of $217 for days 21 through 100 in 2026 [29]. A physician's certification is due at admission or as soon after as is practicable [30]. On 2024 cost reports, Medicare days per Medicare discharge averaged 39.1 [1], well short of the 100-day limit, which is why Medicare beds turn over and need a steady flow of hospital referrals.

Exhibit 7. Medicare skilled nursing coverage rules the demand model uses

Source: CFR revised as of October 1, 2025, via GovInfo, and the CY 2026 coinsurance notice, as cited.

HUD's market study rules for Section 232 loans give the best public statement of how nursing home demand should be measured. HUD says a demand estimate for nursing homes "would rarely be based on demographic criteria such as sufficient incomes", and should instead rest on need "by type of insurance such as Medicare, Medicaid managed care or commercial insurance" [11]. It asks for unmet demand today and a forecast five years out, in beds by payer source [11].

The same chapter separates operated beds from licensed beds, because many homes "do not operate all of their licensed beds" [11]. A market with low occupancy on licensed beds can still be tight on staffed beds, and an unused license can come back into service. HUD's advisory note also puts the share of demand that comes from the primary market area at 60 to 80 percent [11], a useful check on a market area drawn too wide.

The study then turns need into a lease-up. The pace depends on hospital referral agreements, certification dates and how fast the operator can hire. HUD asks for the absorption period "by month" in the alternative market study it accepts where no state need agency exists [3], and a lender reading any skilled nursing study should expect the same monthly schedule, with the operating reserve sized to cover the losses until the census stabilizes.

Which states have the most beds for their oldest residents?

Arkansas, Missouri, Louisiana, Indiana and Oklahoma have the most certified beds per 1,000 residents aged 85 and over, each above 350, while Arizona, Hawaii and Alaska have fewer than 100 [7][18]. Bed supply and occupancy do not move together: Oklahoma combines one of the highest bed ratios with the lowest occupancy in the table, 62.6%, while North Dakota runs at 92.9% [7]. The growth of the oldest cohort varies just as much, from +1.2% in Nebraska to +24.6% in Nevada between 2020 and 2025 [18].

A state with few beds per older resident, high occupancy and a fast-growing 85+ cohort points to unmet need; many beds and low occupancy point the other way, unless the subject would replace old beds. The study runs the same test at the market-area level.

Exhibit 8. Certified nursing home supply and the population aged 85 and over, by state

Source: CMS Nursing Home Provider Information, October 2026 file [7]; U.S. Census Bureau, Vintage 2025 state civilian population by single year of age [18]; FSC tabulation. Territories excluded.

Certified beds are not operated beds, so low occupancy may overstate open capacity, and the staffing column is the median of reported hours, a sign of each state's labor market rather than a target.

How should the study build the payer mix?

It should build the mix day by day from the market's referral flow and Medicaid demand, then check it against what comparable homes report. The payer mix decides revenue per patient day, and in skilled nursing that number moves with the share of Medicare days far more than with the room rate.

The cost reports show why. Across 12,969 twelve-month reports for 2024, Medicaid paid for 54.7% of inpatient days, Medicare for 10.0% and all other payers for 35.3% [1]. The Medicare prospective payment averaged $696.35 per Medicare day, 1.83 times the $381.38 of net patient revenue per patient day across all payers [1]. At the facility level, the middle half of reports had Medicare shares between 4.4% and 12.7% of days, with a median of 7.5%; Medicaid shares ran from 38.9% to 74.4%, with a median of 62.0% [1].

Exhibit 9. Payer mix and Medicare stays on 2024 cost reports

Source: CMS Skilled Nursing Facility Cost Report public use file, 2024 [1]; FSC tabulation of 12,969 twelve-month reports. Shares are of total inpatient days; "other" is every day not reported under Title V, Title XVIII (Medicare) or Title XIX (Medicaid). Beds are beds available at the end of the period. The PPS amount is the Medicare prospective payment reported on Worksheet E [32].

Nonprofit homes report the lowest Medicaid share and the highest share of other payers; government homes and rural homes report the lowest Medicare shares and the lowest Medicare payment per day; urban homes earn more per Medicare day than rural homes, in part because Medicare sets separate urban and rural rate tables and adjusts them by the local wage index [19]. A proposed mix far outside its segment needs a reason the lender can test, such as a hospital partnership.

The study builds the mix in five steps:

1. Medicare days. Qualifying discharges from referring hospitals, the subject's share and the length of stay, checked against competitors and Exhibit 9.
2. Medicaid days. Long-stay need from the older population and competitors' Medicaid shares, checked against the state's bed and certification policy.
3. Other days. Private pay, insurance and managed care, each with its own rate from contracts or a competitor survey.
4. Rates. Medicare from the federal rule and expected case mix, Medicaid from the state's method, others from contracts.
5. Reconciliation. Days by payer add up to total days, within what the beds and staffing plan support.

A caution on the state-level data in Exhibit 13 below: the split between Medicaid days and other days depends on how each report classifies managed care plan days. A state figure far from its neighbors, such as California's Medicaid share of 21.7%, should be checked against the state's own Medicaid data before it is used for a projection [1].

Payer mix and coverage check

The calculator below tests the core arithmetic of a skilled nursing projection. It takes licensed beds, occupancy and a payer mix of Medicare, Medicaid and other days, applies a daily rate to each, and returns revenue per patient day, nursing labor cost from hours per resident day and an hourly cost, net operating income after other costs, a management fee and a reserve, and debt service coverage. It also shows the occupancy at which coverage reaches the target. Its inputs are illustrative assumptions you replace with your own; none of the defaults is a market figure, and the result is not a feasibility conclusion.

Moving 4 points of days from Medicare to Medicaid does more damage than losing 5 points of occupancy, because each Medicare day replaced by a Medicaid day loses the full rate gap while the cost of the day stays the same. Exhibit 21 later on this page shows the same tests as a table.

How do Medicare rates for skilled nursing work in fiscal 2027?

Medicare pays a skilled nursing facility a prospective rate per day, adjusted for the patient's case mix and the local wage level, and updates it every October by a market basket increase less a productivity adjustment. For fiscal 2027, which began on October 1, 2026, the market basket increase was 3.3%, the productivity adjustment 0.9 percentage point, and the resulting update 2.4% [19]. CMS estimated that the update raises Part A payments to skilled nursing facilities by about $882.74 million [19].

The prospective payment system has applied to cost reporting periods beginning on or after July 1, 1998 [19]. The per diem rate is "payment in full" for routine, ancillary and capital-related costs of a covered stay, subject to coinsurance [31]. Under the Patient Driven Payment Model, the unadjusted federal per diem rates are divided into six components [19]; five are adjusted for the patient's case mix and one is not. The case-mix index is a scale that "measures the relative difference in resource intensity" among patient groups [33]. Rates are standardized with "an appropriate wage index to adjust for area wage differences" [34], and the labor-related share of the rate for fiscal 2027 is 72.0% [19].

Exhibit 10. The fiscal 2027 Medicare skilled nursing update

Source: CMS, FY 2027 SNF PPS final rule, 91 FR 48588 [19].

The rate tables are published as images in the rule, so the study takes the per diem components and the subject's wage index from the rule and CMS's rate files. Three things set a home's Medicare rate: case mix, the area wage index and the annual update. A projection that grows Medicare revenue faster than the update needs a case-mix reason.

Quality programs also move the Medicare rate. A home that does not report quality data loses 2 percentage points of its annual update, and the value-based purchasing program withholds 2 percent of each scored home's rate and pays back 60 percent of the pool by performance [19][35][36]. For fiscal 2027, CMS expected the program to save Medicare about $203.60 million [19].

Exhibit 11. Quality programs that adjust a skilled nursing home's Medicare pay

Source: CMS, FY 2027 SNF PPS final rule [19]; 42 CFR 413.338 and 413.360 [35][36].

For an acquisition, the seller's quality data are part of the evidence: a home with weak measures carries a payment penalty into the buyer's projection.

How does Medicaid shape the revenue line?

Medicaid sets the floor of most skilled nursing budgets because it pays for more than half of all days. Each state sets its own rates, so the study takes the rate from the state's method and the home's data, not from a national average.

The Economic Census shows Medicaid fee for service as the single largest payer of nursing care receipts [25], and the cost reports put Medicaid at 54.7% of days in 2024 [1]. In West Virginia, Mississippi and Louisiana, Medicaid paid for more than 70% of days on cost reports; in Ohio, Oregon and Iowa, it paid for less than half [1]. A projection built on one state's Medicaid economics does not travel to another.

Several Medicaid rules bear directly on feasibility:

• Provider taxes. Federal rules list nursing facility services as a class on which a state may levy a health care-related tax [37]. A tax that produces revenue of no more than 6 percent of the taxpayer's revenue passes the first prong of the federal "indirect guarantee" test [38]. Where a state levies such a tax, the study counts it as an expense and the rate it supports as revenue, and tests both if the tax changes.
• Capital in the rate. Some states pay a capital component in the Medicaid rate. HUD requires a sinking fund for nursing homes in states whose Medicaid rates include more than an insignificant capital component and pass depreciation through [3]. The study shows how the state's capital method treats new construction and changes of ownership.
• Bed-hold. Residents must receive notice of "the duration of the state bed-hold policy, if any" when they leave for a hospital stay [39]. A state that pays to hold the bed supports occupancy; one that does not shifts the risk to the operator.
• Certification and bed allocation. In moratorium states, Medicaid certification of new beds is the constraint. Minnesota's statute directs the state to deny requests for new licensed or certified nursing home beds except under listed exceptions [16].

What do SNF cost reports show about operating margins?

They show a business that, on average, loses a little money on patient care and earns a small net margin only after other income. Across 12,955 twelve-month 2024 reports with positive revenue and expense, net patient revenue averaged $381.38 per patient day and operating expense $405.92, an aggregate operating margin of -6.4% [1]. The median report did better, at -0.2%, because large losses at a minority of homes pull the aggregate down. Still, 51.1% of reports showed a loss from patient care. After other income, the aggregate net margin was 2.4% [1].

The cost report is the most detailed public record of a home's finances: days by payer, beds, salaries and contract labor, revenues and expenses, and the Medicare settlement [32]. Net patient revenue less total operating expense is the net income from service to patients [32].

Exhibit 12. Operating economics on 2024 cost reports, by segment

Source: CMS Skilled Nursing Facility Cost Report public use file, 2024 [1]; FSC tabulation of 12,955 twelve-month reports with positive revenue and expense. Operating margin is net patient revenue less total operating expense, divided by net patient revenue; net margin adds other income [32].

Four patterns stand out for a lender:

• Size. Homes of 100 to 149 beds had the best median operating margin, 0.5%. Homes under 50 beds had the highest revenue per day, $502.39, but even higher expense, $668.84, and a median margin of -3.7% [1].
• Ownership. For-profit homes had a median operating margin of 1.2% and the lowest share of loss-making reports, 44.9%; nonprofit homes had a median of -8.6% with 74.3% of reports showing a loss on patient care, but a positive net margin after other income [1]. Many nonprofit homes sit on continuing care campuses: 970 of the 1,548 homes flagged as part of a continuing care retirement community are nonprofit [7]. Other lines of a campus can carry a nursing unit; a stand-alone project cannot count on that.
• Labor. Salaries alone averaged $174.83 per patient day, and contract labor was 11.0% of salaries plus contract labor [1]. In the Economic Census, payroll equaled 42.5% of nursing care receipts in 2022 before benefits [24].
• Other income. The gap between the operating margin and the net margin is other income, meaning income from outside patient care. The study does not count other income toward coverage unless the lender agrees that it will recur and belongs to the borrower.

The state table shows how far these economics vary. West Virginia, Idaho and Kentucky had median operating margins above 7%; the District of Columbia, Pennsylvania and New Hampshire were below -6% [1]. Contract labor ran from 1.7% of labor cost in Alaska to 35.5% in Vermont [1]. Revenue per patient day ranged from $276.47 in Texas to $825.98 in Alaska, and the Medicare payment per Medicare day from $482.09 in Virginia to $927.75 in California [1].

Exhibit 13. Cost report payer mix and economics by state, 2024

Source: CMS Skilled Nursing Facility Cost Report public use file, 2024 [1]; FSC tabulation of twelve-month reports by state. States with few reports (Alaska has 6) can move a lot from year to year.

Exhibit 13 is a benchmark, not a forecast: it tests whether a sponsor's revenue, payer mix and contract labor fall within what homes in the same state report.

What staffing rules apply after the 2024 minimums were repealed?

The federal rule is again the older one: a home must have sufficient nursing staff to meet its residents' needs, use a registered nurse at least 8 consecutive hours a day, 7 days a week, and employ a full-time registered nurse as director of nursing, unless waived [4]. The 2024 minimums of 3.48 total nurse hours, 0.55 registered nurse hours and 2.45 aide hours per resident day, and the rule for a registered nurse on site 24 hours a day, are gone from the regulation [4]. State staffing rules still apply, and so does the federal facility assessment.

The history matters because loan files written in 2024 and 2025 may still carry the old assumptions. Two federal district courts vacated the minimums, section 71111 of Public Law 119-21 barred their enforcement, and CMS repealed them [4]. Exhibit 14 sets out the dates.

Exhibit 14. Federal nurse staffing rules for skilled nursing homes, 2024 to 2026

Source: CMS, interim final rule repealing the minimum staffing standards, 90 FR 55687 [4].

CMS estimated that rescinding the standards saves providers about $5.51 billion a year, or $55,089,104,265 over ten years [4]. Those are costs the rule would have added, not what homes spend today, so the study still builds labor from the subject's staffing plan and local wages.

Three other rules shape the labor build:

• Director of nursing. The director may also serve as a charge nurse only when the home has an average daily occupancy of 60 or fewer residents [4]. Above that size, the director is a separate full-time position.
• Facility assessment. Each home must assess the resources it needs "during both day-to-day operations" and emergencies, and must update the assessment "at least annually" [20]. The repeal moved the cross-reference for the assessment to 42 CFR 483.71 [4]. Surveyors can test staffing against the home's own assessment, so the study's staffing plan should match it.
• Administrator. The administrator must be licensed by the state where licensing is required [41].

Reported staffing shows where homes stand. The median home reported 3.71 total nurse hours, 0.59 registered nurse hours and 2.25 aide hours per resident day in the October 2026 file, and median total nursing staff turnover of 44.7% [7]. Of 14,319 homes with reported hours, 67.0% reached 3.48 total hours, 55.6% reached 0.55 registered nurse hours, 34.4% reached 2.45 aide hours, and 22.8% reached all three [7]. The aide level was the hardest to meet.

The staffing build has four parts: hours by discipline from the operating plan, local wage and benefit costs, an allowance for contract staff, and a check against the state minimum and the facility assessment.

How do certificate-of-need laws affect a new skilled nursing facility?

In a certificate-of-need state, the state must approve new nursing home beds before they are built, and in a moratorium state it generally will not approve them at all. Bed authority is the first feasibility test.

The statutes differ in what they cover and how need is judged. Virginia accepts applications for new nursing home beds only in response to requests for applications, published "at least annually" [10]. Minnesota and Connecticut run moratoria with listed exceptions [16][17]. Florida exempts small additions where, among other conditions, prior 12-month occupancy "meets or exceeds 94 percent" [12].

Exhibit 15. Nursing home bed controls in eleven states

Source: state statutes as published by each legislature, accessed November 2026; FSC summary.

HUD ties its program to these rules. Its handbook says skilled nursing and intermediate care beds "require a certificate of need (CON) from the state agency with jurisdiction" where one applies [3], and the National Housing Act bars insuring a nursing home mortgage without the state agency's certification that "there is a need for such home or facility" [2]. Where no authorized agency exists, the state may commission an independent study of need and feasibility that HUD accepts [3]. The cost of buying a certificate or bed authority is not mortgageable and is not eligible operator debt; it counts toward total project cost and equity, not toward the cash reserve [23].

Where a state limits new beds, existing beds become an asset that can be bought or moved under the state's rules. HUD asks the market analyst to describe the state's rules on "transfer" of CON beds, including whether a transfer must stay in the same county and what arm's-length prices look like where the data can be found [11]. Missouri, for example, lets a long-term care facility replace one-half of its licensed beds at a site not more than thirty miles away under listed conditions [13].

Which federal design and certification rules shape the building?

The Life Safety Code, sprinklers, room occupancy and room size rules in 42 CFR 483.90 set the shape of a skilled nursing building, and a home that fails them cannot be certified. The study confirms that the plans meet them before it relies on a bed count.

Room rules decide how many beds fit. Homes with older approvals may have bedrooms of up to four residents, but homes "newly certified after November 28, 2016" must have bedrooms of no more than two residents [21]. Bedrooms must measure at least 80 square feet per resident in shared rooms and 100 square feet in single rooms, and in newer homes each resident room must have its own bathroom with at least a commode and sink [21]. The study ties the room mix to the payer plan.

Exhibit 16. Federal physical environment rules that shape a skilled nursing project

Source: 42 CFR 483.90 and 483.5, CFR revised as of October 1, 2025; CMS provider file for sprinkler status.

The CMS file shows 36 homes with sprinklers in only part of the required areas and 51 with no data [7]. HUD's Section 232(i) program finances fire safety equipment, "primarily fire sprinkler systems" [3], for homes that need to close that gap.

How do inspections, star ratings and penalties affect feasibility?

They decide whether the home keeps billing. A home out of substantial compliance can lose payment for new admissions, pay daily penalties or lose its provider agreement, so the study treats the inspection record as part of the cash flow.

The survey cycle is fixed by rule. The state survey agency must inspect each skilled nursing facility and nursing facility "not later than 15 months after the last day of the previous standard survey", and the statewide average interval must be 12 months or less [50]. Findings are graded by scope and severity. The most serious level is immediate jeopardy, a situation in which noncompliance "has caused, or is likely to cause, serious injury, harm, impairment, or death to a resident" [51].

Remedies scale with severity, from a directed plan of correction up to temporary management and termination, and civil money penalty ranges are adjusted each year for inflation under 45 CFR part 102 [22][52]. Exhibit 18 lists them.

Exhibit 17. Overall star ratings and Special Focus status, October 2026

Source: CMS Nursing Home Provider Information, October 2026 file [7]; FSC tabulation of 14,560 rated homes. Special Focus status is a separate field.

The star ratings summarize inspections, staffing and quality measures, and lenders and hospitals both read them. The mean overall rating of rated homes was 3.05 [7]. Eighty-seven homes were Special Focus Facilities and 440 were candidates [7]. Hospitals, physicians and families can all see the same ratings when they choose a home, so the study treats a low rating as a risk to Medicare days as well as a compliance issue.

Exhibit 18. Federal enforcement remedies and their effect on cash flow

Source: 42 CFR Part 488, CFR revised as of October 1, 2025.

Every home must also run a quality program. Each facility, "including a facility that is part of a multiunit chain", must "develop, implement, and maintain an effective, comprehensive, data-driven QAPI program" [54]. For a new home, the study reads the named operator's other homes; for an acquisition, the subject's recent surveys, penalties and plan of correction status.

Which financing paths fit a skilled nursing facility?

HUD's Section 232 mortgage insurance, SBA 7(a) and 504 loans, USDA Business and Industry guarantees and conventional bank loans all lend on skilled nursing homes, and each reads the study differently. The study is written so that one set of evidence serves whichever path the borrower takes.

Exhibit 19. Financing paths for skilled nursing facilities

Source: HUD Handbook 4232.1; SBA SOP 50 10 8.1 and loan program pages; 7 CFR 5001; as cited.

HUD Section 232

HUD insures nursing home mortgages under section 232 of the National Housing Act [58]. The borrower must be a single asset entity unless HUD approves otherwise [59], and licensed beds must be at least the beds in HUD's loan sizing [3].

HUD insures new construction, substantial rehabilitation, 223(f) purchases and refinances, 223(a)(7) streamlined refinances, 241(a) supplemental loans and 232(i) fire safety loans on nursing homes [3]. Its market study rules are the strictest public standard for skilled nursing demand. Where no state agency can certify need, the state may commission an independent study that assesses market need, competing homes, payer sources and rates, and the absorption of beds "by month" [3]. The National Housing Act lets the borrower reimburse the state for that independent study [2]. In states that pay a capital component in Medicaid rates and pass depreciation through, HUD also requires a sinking fund [3].

SBA 7(a) and 504

SBA lends to businesses "licensed as nursing homes, assisted living facilities, or state-licensed equivalents" that provide health care or medical services [15]. Residential facilities that are not licensed and do not provide health care services are not eligible [15], and passive owners that do not occupy the property are excluded unless they qualify as Eligible Passive Companies [60]. SBA lists nursing homes, including assisted living facilities, among its limited or special purpose properties [15], which raises the borrower contribution on a 504 loan to at least 15%, or 20% when the project also involves a new business [15].

Coverage must be at least 1.15 on a historical or projected basis and 1.0 on a global basis, and a start-up or construction project must show projections that reach 1.15 within 2 years [15]. For an initial acquisition, Appendix 15 sets coverage at 1.25 [15]. The 7(a) maximum is $5 million and the 504 maximum is $5.5 million [55][56], so SBA fits smaller homes, acquisitions by operators or part of a larger financing. Where a management company will run the home, the lender must review the agreement to decide whether it makes the applicant an ineligible passive business [15]. SBA may also request a feasibility study itself, including where the project property is "highly specialized" [15]. The SBA loan programs page and the SOP 50 10 8.1 update explain the current rules, and the debt service coverage article shows how each program measures coverage.

USDA Business and Industry

USDA's Business and Industry rule lists as eligible "nursing homes and assisted living facilities where constant medical care is provided and available onsite to the residents" [57]. USDA's definition of a feasibility study, quoted at the top of this page, is the one this study follows [5]. The USDA loan programs page covers the rural test and guarantee terms.

Conventional bank loans

Banks lend on skilled nursing homes under their own policies. SBA's rule that loans be "so sound as to reasonably assure repayment" [61] states the standard every lender applies. The conventional loan programs page explains how a bank's review differs from SBA and USDA.

What does an acquisition study test?

It tests whether the home the buyer is purchasing can keep its license, certifications, payer contracts and staff through the sale, and whether its history supports the debt. An acquisition is often safer than new construction because there is a record to read, but that record can also show a problem the price does not reflect.

The federal rules on change of ownership decide what transfers. The lease of all or part of a facility counts as a change of ownership of the leased part, while a transfer of corporate stock does not [14]. A provider contemplating a change of ownership must notify CMS, and the existing provider agreement is automatically assigned to the new owner, subject to the terms under which it was issued, including any existing plan of correction [14]. HUD requires a new state certification of need on an acquisition or refinance if the state requires a new certificate [3]. SBA requires a lender financing the acquisition of an operating special purpose property to analyze both historical and projected coverage of the business [15].

Exhibit 20. What an acquisition study reads

Source: FSC acquisition checklist; rules as cited.

The study reconciles the cost reports with the seller's financial statements, since the lender's coverage test depends on which numbers are used.

How does the study test coverage under stress?

It moves one assumption at a time to a level the evidence says is plausible, then moves the most likely ones together, and reports coverage in each case. The lender then sees which assumption the loan depends on.

In skilled nursing, the stress tests that matter most are the ones the cost reports show to be thin: the Medicare share, the Medicaid rate, the wage level and the hours per resident day. Exhibit 21 applies them to the illustrative calculator defaults. These are model outputs from illustrative inputs, not market figures and not a conclusion about any project.

Exhibit 21. Illustrative stress test using the calculator defaults (model outputs)

Source: FSC illustrative model (the calculator on this page); inputs are assumptions, not market data.

The pattern is the lesson. In this example, occupancy can fall to about 80.0% before coverage drops below 1.45, yet a 4-point shift from Medicare to Medicaid days, a 5% Medicaid rate cut or an 8% rise in nursing cost each pushes coverage much lower. Nursing labor in the base case is $159.60 per patient day and 46.1% of revenue, so small changes in wages or hours swamp small changes in census. A real study replaces every input with evidence and adds the cases its market suggests, such as a slower lease-up, a higher contract labor share or a provider tax change.

After closing, the same model becomes a monitoring tool: quarterly census by payer, labor hours and the latest survey show whether the home is tracking the study.

What does a skilled nursing facility feasibility study cost, and how long does it take?

The cost and the schedule depend on scope: whether the project is new construction or an acquisition, whether a certificate-of-need application is part of the work, how many competitors the market holds and how many capital sources must accept the report. The engagement is scoped and priced before work starts, and the conclusion does not affect the fee.

A new-construction scope covers demand by payer, the competitor survey, bed authority, the staffing and rate builds, the budget review, a monthly lease-up and reserve schedule, the pro forma, coverage and stress cases. An acquisition scope replaces the lease-up with a reconciliation of three years of cost reports and financial statements, the inspection history and the change of ownership path. The schedule depends mostly on how quickly the sponsor supplies the operator's records, plans and bed authority documents.

What must the report contain?

It must contain every piece of evidence a lender's analyst would otherwise have to build.

Exhibit 22. Contents of a skilled nursing facility feasibility report

Source: FSC report standard; rules and data as cited.

How the study runs

The work runs in five steps: scope and documents; bed authority and market, with every competitor's beds, occupancy, payer mix, staffing and ratings pulled from the CMS files and confirmed by interview; the operating model and monthly lease-up; the financial test at the lender's benchmark with stress cases; and the report, with the conclusion and the evidence behind each number.

Sarrah Allen, MAI, signs the report. The about page describes the practice, and the asset classes page lists the other property types FSC studies.

Download the evidence behind this page's exhibits (CSV, 1,057 data points with sources)