A KFF analysis reported by Skilled Nursing News puts about $3.7 billion a year in nursing home state-directed payments, including $2.2 billion in federal money, in play under the 2025 budget reconciliation law, with Pennsylvania alone holding roughly $1 billion of the federal share. In the same week, Massachusetts declared California operator Sweetwater Care unsuitable to take over 11 Next Step Healthcare homes, and a Dutchess County, New York, jury awarded $6.8 million against a 62-bed nursing home and its owners over chronic understaffing. Money is getting tighter, and the people who own and staff buildings are being held to account for it.
Why it matters for vendors: Rehinged finds 1,474 facilities in the six states the coverage names (Pennsylvania, Texas, Illinois, Indiana, Rhode Island and New Mexico) that lost money on their latest cost report, and 776 of them are rated two stars or below. Vendors selling labor, supply and revenue-cycle savings should start in Illinois and Pennsylvania, where about 63 percent of cost-report filers are in the red. Vendors with contracts in homes under ownership or litigation pressure should expect purchasing reviews, and staffing vendors have a ready list of 709 for-profit homes with weak staffing and turnover above 50 percent.
Sources: Skilled Nursing News · Insurance Journal · McKnight’s · Rehinged Intelligence (14,690 scored facilities, data as of October 8, 2026)
Top Signals
Reimbursement
Regulatory
KFF: $2.2 Billion in Federal Nursing Home Funding Is Exposed to New Medicaid Payment Limits
What happened
A KFF News analysis, reported by Skilled Nursing News, estimates that nursing home state-directed payments (SDPs) total about $3.7 billion a year, including $2.2 billion in federal funding, or almost 60 percent of the total. At least 15 states use them. Pennsylvania receives about $1 billion a year, nearly 47 percent of the national federal total. The 2025 budget reconciliation law, known as OBBBA, sets new limits on these payments, and a proposed federal rule will decide how deep the reductions go. One source said the payments may begin to shrink each year starting in 2028, and federal regulators have acknowledged they do not yet know the size of the cuts.
Texas, New Mexico, Rhode Island, Illinois and Indiana may also be affected, to a degree no one can yet state. Saber Healthcare’s Zach Shamberg said “Pennsylvania potentially has more at stake than any state in the country” and called the payments federally approved and transparent, not loopholes. The Pennsylvania Health Care Association said it is too early to judge facility-level impact, noting that KFF used a 74.6 percent of average commercial rates figure for 2025 while the state’s 2026 filing separates nonpublic facilities (48.5 percent) from county facilities (97.5 percent). AHCA/NCAL’s John Kane said effects will vary by state and that the association is working to protect base Medicaid rates.
Why it matters
State-directed payments are the money that closes the gap between base Medicaid rates and the cost of care, and they are concentrated: one state holds nearly half of the federal dollars. Nothing has been cut yet and the size is unknown, which is exactly why operators in exposed states will delay discretionary spending and ask for hard payback on anything they buy. Vendors should expect that conversation to arrive first in Pennsylvania.
Rehinged does not hold facility-level payment data, so this read measures who is already thin: facilities in the six states the coverage names whose latest Medicare cost report on file shows a net loss. Rehinged Intelligence analysis of 14,690 scored facilities finds 1,474 facilities in Pennsylvania, Texas, Illinois, Indiana, Rhode Island and New Mexico reporting a net loss. They average 2.59 stars and 123 beds, 180,821 beds in all. 776 of them are rated two stars or below, averaging 1.42 stars and 138 beds.
1,474
loss-making facilities in the six named states
776
of those rated two stars or below
396
in Pennsylvania, 63.4% of the state’s cost-report filers
Loss-making facilities, by state
Share matters as much as count. In Illinois 63.9 percent and in Pennsylvania 63.4 percent of facilities that filed a cost report show a net loss, against 40.9 percent in Texas and 30.1 percent in Indiana; Rhode Island is at 58.8 percent and New Mexico at 50.8 percent. The two-star-or-below group splits almost evenly between Texas (238) and Illinois (234), with Pennsylvania at 198, Indiana at 70, Rhode Island at 20 and New Mexico at 16. These are the buildings with the least room to absorb a payment cut and the weakest quality position from which to argue against one. Vendors selling labor, supply or revenue-cycle savings should prioritize Illinois and Pennsylvania, where nearly two of every three filers are in the red, and Texas for sheer volume. Vendors selling discretionary upgrades into those states should lead with payback measured in months.
Watch for: CMS’s final rule on state-directed payments, the 2028 start of annual reductions, and Pennsylvania’s updated 2026 payment filing.
M&A / Ownership
Regulatory
Staffing
Massachusetts Rejects Sweetwater’s Bid for 11 Nursing Homes as a New York Jury Awards $6.8 Million Over Understaffing
What happened
The Massachusetts Department of Public Health ruled that affiliates of Sweetwater Care, a Carlsbad, California operator, are “unsuitable” to acquire 11 nursing homes run by Next Step Healthcare. Sweetwater can appeal but cannot obtain a license while the appeal is pending. Dignity Alliance Massachusetts urged the state to block the deal, pointing to low staffing and star ratings at Sweetwater facilities; in July the California attorney general reached a $15 million settlement with Sweetwater over staffing violations, and a state report found more than 14,000 instances of low staffing. The decision follows criticism that Massachusetts did not vet out-of-state buyers hard enough, as when RegalCare bought 12 homes and the state later moved to revoke its license. A 2024 law expanded that authority, but implementing regulations were not approved until October 14. Sweetwater is still temporarily managing the 11 homes, which a judge placed in receivership earlier this year.
In New York, a Dutchess County jury returned a $6.8 million verdict in a class action over chronic understaffing at Sapphire Nursing at Wappingers, a 62-bed home: $3.2 million in compensatory damages against the facility and its owners and $3.6 million in punitive damages. The class covers residents from 2017 to 2020. Plaintiffs said the owners cut registered nurse, LPN and aide staffing after taking control in 2017, leaving residents waiting hours for bathing, feeding, medication and wound care. The defendants say staffing met state and federal requirements, told Law360 the verdict goes “against the weight of evidence,” and are pursuing post-trial remedies.
Why it matters
A state agency and a jury did the same thing this week: they treated an operator’s staffing history as grounds to withhold something or to charge for it. For a buyer, a poor staffing record can now cost a license in Massachusetts. For an owner, understaffing can reach personal liability in New York. Operators with thin staffing or heavy turnover will spend to document and improve it, and vendors who can show staffing stability, scheduling and retention results now have an argument about risk, not just cost.
Rehinged Intelligence analysis of 14,690 scored facilities puts numbers on each piece. Next Step Healthcare appears in the data with 14 facilities, all in Massachusetts, 1,667 beds and an average of 1.71 stars; the blocked sale covers 11 of them. Sweetwater Care’s footprint in Rehinged data is 8 facilities, four in Colorado and four in Montana, 814 beds and 2.43 stars on average, none in Massachusetts. Nationally, 709 for-profit facilities combine a staffing-adequacy score of 40 or higher with nursing turnover above 50 percent.
14
Next Step facilities in Massachusetts, averaging 1.71 stars
8
Sweetwater facilities, in Colorado and Montana
709
for-profit homes with weak staffing and turnover above 50%
For-profit homes with weak staffing and high turnover, by state
The 709 average 1.73 stars and 117 beds, and Texas (154), Missouri (134) and Illinois (85) hold 373 of them. Those are the buildings where a plaintiff’s lawyer or a licensing board would find the pattern the New York jury priced. A caution on timing: Sapphire Nursing at Wappingers today is a two-star home with 56 percent nursing turnover but a staffing-adequacy score of 19, below the 40 that flags elevated need, because the verdict looks back to 2017 through 2020 and current data would not flag the building. In New York itself, 87 facilities show elevated staffing need, averaging 2.69 stars across 17,353 beds, and Sapphire Care Group’s eight New York buildings average 2.63 stars. Staffing, scheduling and retention vendors should lead with licensing and litigation exposure in Texas, Missouri and Illinois and use the New York verdict in New York. Vendors with contracts in the 14 Next Step buildings should expect disruption until a buyer is approved.
Watch for: Sweetwater’s appeal and the identity of any new buyer for the 11 Next Step homes, post-trial motions in the Sapphire case, and whether other states copy Massachusetts’ out-of-state buyer vetting.
Quick Hits
A RETHINK panel names Medicaid rates, repair costs and RN shortages among the risks derailing expansion. Omega Healthcare Investors’ Daniel Miltner, Sage Integrated Health’s Kimberly Green and Cascadia’s Steve LaForte also listed rents set too high for a building’s condition, low census and OBBBA. Miltner said unstabilized pricing at a 5 percent going-in cap rate does not interest Omega, so landlords are underwriting the same pressure as the payment story above.
Skilled Nursing News
HHS released a wide-ranging 2026 update to the National Plan to Address Alzheimer’s Disease and Related Dementias on Thursday. Secretary Robert F. Kennedy Jr. issued the update; its nursing home provisions were not reviewed for this edition. Dementia-care, behavioral health and staff-training vendors should read the plan’s long-term care actions before building 2027 messaging.
McKnight’s
Nursing home REIT leaders say clinical quality comes before quick returns for operators seeking landlord contracts. A trio of leaders from nursing home-heavy investment groups said Thursday that quality care, mission alignment and operational grit must come first. For quality-measure and survey-readiness vendors, operators courting landlords are a defined buyer.
McKnight’s