Senior Living Operators Convert Skilled Units To Assisted Living Amid Stagnant Reimbursements, Cost Pressures

With Medicaid reimbursements for skilled nursing units failing to keep up with the cost of care needed, some operators are shifting away from the practice and further embracing assisted living with unit conversions.

Among the operators doing so is Riverdale, New York-based RiverSpring Living, which in early September began shifting roughly a third of its nursing home beds to assisted living in its Hebrew Home at Riverdale community. Although skilled nursing is part of the organization’s “core identity,” financial pressures drove the move, according to President and CEO David V. Pomeranz.

“While we think it’s important and will always be an essential part of us, proportionately, it’s unaffordable to do it at the level we were doing it,” Pomeranz said. “The losses are too great to make up in other parts of an organization.”

On average, Medicaid reimburses RiverSpring $135 less per day than it actually costs the operator to care for residents, which quickly adds up.

“When you’re losing millions of dollars, you have to find a way to do it differently. That’s what this plan is all about,” Pomeranz said.

Third-party operator and consulting company Health Dimensions Group also has slowly shifted its focus from skilled nursing to other product types in the last 10 to 15 years. Only about a third of the Minneapolis, Minnesota-based company’s management portfolio consists of skilled nursing as of 2025.

Rogotzke said the desire to focus more on senior living stems from a combination of evolving resident preference, struggles with reimbursements, higher regulatory scrutiny and low staff availability.

Pain points of skilled nursing

LifeSpire of Virginia, a nonprofit operator based out of Glen Allen, Virginia, with five communities, has shifted its growth strategy to exclude acquisitions of communities that have skilled nursing units. In 2021, the organization purchased the independent living and assisted living wings of The Summit in Lynchburg, Virginia, but not the skilled nursing wing, which today operates on the same campus under a different provider, according to Chief Marketing Officer Peter Robinson.

Today about 16% of LifeSpire’s units are skilled nursing. One of the nonprofit’s communities has 96 skilled nursing beds, and the operator is determining how many of those can be converted to assisted living, according to Robinson.

Medicaid and Medicare Advantage reimbursements “constantly” change, putting pressure on the company’s finances stemming from skilled nursing. That is not to mention general regulatory burdens and concerns recruiting and retaining workers.

“With our four skilled nursing buildings, we did some compression analysis and we’re having to increase wages for LPNs and RNs almost $1 million in next year’s budget,” LifeSpire CEO Jonathan Cook told Senior Housing News. “There’s just not enough LPNs and RNs in the market to meet the needs.”

There is also the factor of shifting consumer preferences, with residents choosing assisted-living settings over skilled nursing care, if they can, Rogotzke said. Between the lower costs and the ways operators with assisted living are improving their operations, residents can remain in those units without moving to skilled nursing much longer now than they could years ago.

“More complex resident acuity needs in skilled nursing combined with finding staff that can execute on those needed competencies has made skilled care increasingly difficult,” Rogotzke said.

According to Pomeranz, Medicaid rates haven’t risen along with the cost of care over the past 15 years, passing along financial hardships to the providers of those services.

“Your model is working in the wrong direction. Everything’s getting more expensive, and revenue is not moving,” he said. “Because it’s our core value, we’ll always find a way to do it. We just have to do it in a way we can afford to. And that’s the decision to truncate it and bring it down to a level which is something we can absorb.”

Transitioning from skilled to AL

Some operators switching units from skilled to assisted living find they have fewer units after their conversion given renovations and amenity changes.

LifeSpire typically combines 300 square-foot skilled nursing units into one 600 square-foot assisted living unit, for example. At times, the operator converts common areas into portions of the required square footage of the new assisted living unit, according to Robinson.

The units are more focused on lifestyle than skilled nursing and thus LifeSpire adds more more casual amenities such as kitchenettes, mini-refrigerators and residential furnishings “so it feels more like a home rather than a medical institution.”

Before undertaking any unit conversions, HDG, studies units and communities to ensure a smooth renovation. HDG frequently remodels into single rooms and then expand housing elsewhere on campus.

“While we believe there will always be a need and demand for skilled care, we have seen an uptick in our clients requesting assistance on repositioning skilled nursing assets over the last 5 years,” Rogotzke said. “Even if they aren’t transitioning them to AL they are closing them or putting them on layaway for efficiency.”

While there is more of an opportunity for improved margin on assisted living with lower costs of care, the loss of overall unit count does have an “erosion on margin based on square footage, Cook said. As such, LifeSpire is shifting its focus more on assisted living to improve the marketability of its communities.

“We’re selling contracts on the independent living side that are several hundred thousand dollars, so our assisted living has to be market relevant,” Cook said. “It has to be a very nice, one bedroom, family room, kitchenette-type suite. The old days of one assisted living room with a bathroom just doesn’t cut it.”

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