Home health agencies face 1.3% decrease in Medicare payments

Medicare plans to slash payments to home health agencies next year as the program finalizes the transition to a new reimbursement system, according to a new final rule released by CMS.

The Calendar Year (CY) 2026 Home Health Prospective Payment System Final Rule (CMS-1828-F) finalized an aggregate 1.3% decrease in Medicare payments to home health agencies. The total decrease would reduce payments to the agencies by about $220 million compared to this year's rates.

CMS said in the rule that the payment update reflects an estimated 2.4% increase, or $405 million, reduced by about 0.1% ($15 million) based on the updated fixed-dollar loss ratio for outlier payments and adjustments due to the Patient-Driven Groupings Model (PDGM). The PDGM adjustments include the final permanent adjustment of $150 million and the final temporary adjustment of $460 million.

CMS previously applied adjustments of 3.925% in CY 2023, 2.890% in CY 2024 and 1.975% in CY 2025 as required by the law enacting the PDGM. The adjustments reflect behavioral changes that would occur due to the change to a 30-day unit of payment under PDGM.

In CY 2026, the permanent prospective adjustment to home health Medicare payments is -1.023%, down significantly from the proposed -4.059% adjustment. CMS had also proposed a -5.0% temporary adjustment in June.

CMS had planned to cut home health Medicare payments by much more in CY 2026 after determining it would have paid more under the new PDGM system than the old system. However, commenters responding to the proposed rule raised concerns about behavioral changes after CY 2022 that might have resulted in greater Medicare spending, including the introduction of the OASIS-E assessment, expansion of home health value-based purchasing and increased Medicare Advantage penetration.

Instead, the final rule modified the adjustments and issued a -3.0% temporary adjustment to "mitigate a significant single year payment reduction, financial instability and potential access to care issues," the agency explained in a fact sheet.

However, this is the fourth consecutive year CMS has made permanent cuts to home health Medicare payments.

Additionally, CMS finalized recalibrated PDGM case-mix weights, updated low-utilization payment adjustment thresholds, modified functional impairment levels and updated comorbidity adjustment subgroups for CY 2026. The rule also finalized changes to the face-to-face encounter policy to allow physicians, nurse practitioners, certified nurse specialists and physician assistants to perform these encounters regardless of whether they are the certifying practitioner or if they have cared for the patient in an acute or post-acute facility.

CMS also updated the Home Health Consumer Assessment of Healthcare Providers and Systems, or CAHPS, survey for value-based purchasing. Specifically, the final rule will remove three survey-based measures: Care of Patients, Communications between Providers and Patients and Specific Care Issues.

The final rule will also add the four proposed measures, including three OASIS-based measures.

CMS also said in the final rule that it will be able to revoke Medicare provider enrollment retroactively to reduce instances of fraud, waste and abuse in healthcare. The agency also included changes to durable medical equipment, prosthetic devices, prosthetics, orthotics and supplies, or DMEPOS, accreditation to fight fraud.

Katie Smith Sloan, president and CEO of LeadingAge, an association of nonprofit providers of aging services, said in a statement that the final rule acknowledges that payment support is needed to meet growing demand for home health services. However, the updated adjustments are still unsustainable, she added.

"Despite this progress, our work is not done. Our nonprofit and mission-driven members' viability remains under threat given the years of compounding payment cuts including this year’s," Sloan stated.

"We will continue to push Congress for longer-term payment reforms with the goal of ensuring our members' viability so older adults and their families can access the care they need."

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.