In a new Health Affairs Forefront piece, David Grabowski, Professor of Health Care Policy, and coauthors address the financial hurdles surrounding the renovation of US nursing homes. 

The COVID-19 pandemic exposed deep vulnerabilities in US nursing homes, tragically claiming countless lives. Although federal efforts such as President Biden’s 2022 executive order emphasized resident safety, high quality care, and dignified living environments, many existing long term care facilities were built decades ago and cannot meet the standards of today. There is a need to structurally transform current facilities, and financing such a costly overhaul requires innovative approaches to current long-term financing practices. 

A shift from large, institutional facilities with multiple beds per room towards smaller, resident-centered models is gaining momentum. These models offer significant advantages: Enhanced Privacy, Improved Staff Retention, Better Health Outcomes, and Increased Safety. 

Despite clear advantages, the high cost of building or renovating facilities to meet these modern standards presents a significant financial hurdle. Legacy nursing homes require either complete reconstruction or extensive remodeling.

The Department of Housing and Urban Development (HUD) plays a crucial role in nursing home financing through The Healthcare Mortgage Insurance Program, commonly referred to as Section 232 program, which insures loans for construction, renovation, and refinancing. However, the program currently prioritizes financial risk reduction over quality improvement, and this needs to change.

By aligning HUD Programs with national goals, Dr. Grabowski and colleagues propose several changes to incentivize quality improvement through the Section 232 program:

• Lower mortgage insurance premiums for these new models.
• Adjust debt service requirements to ease financial burdens.
• Waive renovation cost limits for projects creating household models.

Such incentives would encourage the development of resident-centered facilities, particularly benefiting low-income residents, creating sustainable, inclusive communities that provide high-quality, equitable care for all. These changes, implemented without congressional action, can incentivize, and enable the creation of high-quality nursing homes that prioritize resident dignity and well-being.

Modernizing nursing homes with resident-centered models is essential and lower interest rates anticipated in 2024 present a unique opportunity. By working together, the government, nursing home operators, and advocacy groups can leverage HUD programs to finance a future where all long-term care residents can live with dignity in safe, modern facilities.