Wage Hikes Squeeze Nursing Home Margins, Study Finds

Nursing homes that boost caregiver pay to compete in a tight labor market may see their operating margins shrink — at least in the short term — according to new research published this week.

The study, appearing in the Journal of Health Care Organization, Provision, and Financing, found that even modest hourly wage increases were tied to measurable declines in facility profitability.

A $1 increase in hourly wages for registered nurses corresponded with a 0.70 percentage-point drop in operating margin. Similar raises for licensed practical nurses and certified nurse aides were linked to margin declines of 0.17 and 0.31 percentage points, respectively.

Balancing Workforce Investment and Financial Pressure

Researchers analyzed Payroll Based Journal data and Medicare cost reports from 2020 through 2022, covering nearly 38,000 patient years across more than 12,600 nursing homes. About three-quarters of the facilities studied were for-profit.

While higher wages are widely associated with lower staff turnover and improved quality, the financial trade-offs have been less clear — particularly for facilities heavily dependent on Medicaid reimbursement. Medicaid accounted for 59% of payer mix during the study period, followed by private pay (30%) and Medicare (14%).

More than a quarter — 27% — of nursing home net revenue goes toward nursing-related expenses, the researchers noted. During the study period, average hourly wages were $37.58 for RNs, $29.13 for LPNs, and $17.59 for CNAs.

The authors said wage subsidies, targeted Medicaid reimbursement adjustments, and direct investment in frontline care could help facilities absorb rising labor costs while meeting staffing mandates and quality goals.

“These findings underscore the tension between workforce investment and financial sustainability,” the research team wrote, adding that coordinated action by policymakers and industry leaders will be necessary to maintain financial viability.

The authors acknowledged that pandemic-era conditions may have amplified short-term financial effects. They also noted that only one prior study — conducted five years ago — examined wages and profitability, finding that facilities were able to offset higher labor costs by attracting more private-pay residents and increasing prices.