The Floyd County Fiscal Court backed the decision, voting unanimously in support for the project.
The skilled nursing facility would cater to ill, end-of-life inmates.
"We're looking at a possibility of a $5 million payroll based on 1.5 people working for every one bed," Floyd County Judge Executive Ben Hale told WSAZ TV.
Prisoners with serious medical issues will be placed as parolees in the facility, where a skilled nursing staff can care for them around the clock.
Hales says 24/7 care for end-of-life prisoners is a heavy cost burden for the state.
"Even though they could be paroled, they could have families that aren't wanting them, don't want the expense of taking care of end of life care and it still falls back on the state at that point," Hales said.
Prisoners must meet specific criteria outlined by Social Security -- then medical bills will be paid through Medicaid and Medicare.
Prisoners from across the state of Kentucky would be eligible for the facility.
Officials reiterated that those in the facility would not be a danger to the community. The ill prisoners are bedridden and some can't feed or walk by themselves.
Community members say they can get behind the project, if it means good jobs for the area.
"I think it'll be a good idea," Lakisha Ousley said. "And that'll be more money coming in for everybody else."
The facility would be the second of its kind in the country. A prison nursing home is set to open this fall in Georgia.
The project would require a $7 million to $9 million investment by a private company.