When the comment period for the Calendar Year 2026 Home Health Prospective Payment System and DMEPOS Competitive Bidding Program Proposed Rule closed on August 29, the Centers for Medicare & Medicaid Services (CMS) had received over 950,000 submissions. The unusually high volume reflected the dual focus of the rule, which carried significant implications for two distinct parts of the healthcare sector.
The proposed rule represents one of CMS’s most consequential payment updates in recent years, combining technical adjustments to DME distribution with a major recalibration of home health reimbursement rates that could reshape the post-acute care landscape.
Last month, we examined CMS’s proposal to establish a new Remote Item Delivery Competitive Bidding (RID CBP) program for certain durable medical equipment (DME). This month, we turn to the rule’s other major component: a proposed 6.4 percent reduction in Medicare payments for home health services—approximately $1.13 billion relative to 2025. If finalized, it would represent one of the most significant downward adjustments in recent years under the current home health payment framework. The proposal follows several consecutive years of payment decreases as CMS continues efforts to align reimbursement with provider behavior under the Patient-Driven Groupings Model (PDGM).
While CMS described the update as necessary to “improve patient care and protect the Medicare program’s sustainability for future generations,” home health providers and patient advocacy organizations have raised concerns that the proposed cut would jeopardize access to care.
Background
Medicare has covered certain home health services since the program began in 1966, initially limiting the benefit to beneficiaries who had been discharged from a hospital or skilled nursing facility after a stay of at least three days. Congress expanded the benefit under the Social Security Amendments of 1972 (Public Law 92-603) by adding coverage under Part B and increasing annual visit limits. The subsequent elimination of the prior inpatient stay requirement through the Omnibus Reconciliation Act of 1980 made home health available as a stand-alone service for homebound patients needing skilled care.
According to the Medicare Payment Advisory Commission (MedPAC), in 2023, approximately 2.7 million fee-for-service (FFS) Medicare beneficiaries received home health services, resulting in more than $15 billion in program spending under the home health prospective payment system.
Nearly one in five Medicare inpatient discharges is followed by a referral to home health, and research has shown that the timely provision of home health services after hospitalization can significantly improve patient outcomes. An analysis conducted by CareJourney, a healthcare analytics organization, found that patients receiving home health services after inpatient admissions experience fewer emergency department visits within 90 days of discharge, lower hospital readmission rates, and substantially lower mortality rates.
Beyond improving clinical outcomes, home health can also reduce Medicare program costs. The use of home health services after patient discharge is associated with lower total Medicare spending within 90 days, even after accounting for the cost of home health episodes. This is largely due to reduced rates of rehospitalization and institutional care.
While these post-acute benefits are significant, they tell only part of the story. About 45 percent of new Medicare home health episodes begin without a preceding hospitalization or skilled nursing facility stay. These community-based admissions are typically for patients with chronic conditions such as heart failure, diabetes, or COPD, or for those recovering from outpatient surgeries. Together, post-acute and community admissions illustrate the dual role of home health: it can be both a bridge from hospital to home and an ongoing support for chronically ill beneficiaries striving to remain independent.
Who Are Home Health Providers?
As of 2023, there were approximately 12,000 home health agencies (HHAs) approved to participate in the Medicare program. Ownership is heavily concentrated among for-profit agencies, which account for roughly three-quarters of the total, with the remainder split between nonprofit and government-run organizations.
Agency size and reach vary widely. The median home health agency serves just over 100 Medicare beneficiaries each year, often in a single community or county. In contrast, the largest agencies, which are frequently part of national for-profit chains, may treat more than 1,000 beneficiaries annually. Most HHAs (approximately 86 percent) are located in urban counties, although rural agencies play a disproportionately large role in serving geographically isolated populations.
Financial performance also differs across the sector. According to MedPAC’s March 2025 Report to Congress, freestanding home health agencies had an average Medicare margin of about 20 percent in 2023, while hospital-based agencies operated at an average margin of roughly –17 percent. Large for-profit agencies generally reported the highest returns, and smaller or rural providers the lowest. Provider groups, including the Alliance for Care at Home, contend that these averages overstate the sector’s financial strength. In its comment letter on the proposed rule, the Alliance argued that MedPAC’s margin calculations omit lower-paying Medicare Advantage cases and are skewed by anomalous billing data from certain high-fraud regions. The Alliance projects that when these factors are taken into consideration a growing share of agencies will operate at negative margins.
At the same time, more than 1,000 agencies have closed since 2019, reflecting both market pressures and industry consolidation, with multi-agency chains capturing a growing share of patients.
Home Health in Rural America
Medicare beneficiaries in urban ZIP codes use slightly more home health services than those in rural areas. According to MedPAC, rural beneficiaries averaged 22.1 thirty-day home health periods per 100 enrollees in 2023, compared with 24.2 per 100 in urban areas. While nearly all urban ZIP codes are served by multiple agencies, access in rural areas is less stable. The Rural Health Information Hub references a study showing that 10 percent of rural ZIP codes have no home health agency at all, and another 18 percent are served by a single agency. By contrast, just 2 percent of urban ZIP codes lack coverage, and fewer than 4 percent rely on a single agency. Dependence on a single provider can leave rural communities particularly vulnerable to sudden losses of access.
Geography magnifies this vulnerability. Nearly one-third of sparsely populated frontier counties lack a home health provider altogether. Even where agencies exist, home health providers in rural areas often must travel long distances to reach patients, which inflates the cost per visit and limits their capacity. These structural realities help explain why smaller rural agencies typically report thinner margins than their urban counterparts.
How PDGM Shapes the 2026 Payment Debate
The current proposed cuts can be traced to Medicare’s adoption of the Patient-Driven Groupings Model (PDGM) for the home health payment system in 2020. PDGM replaced 60-day episodes of care with 30-day payment periods and recalibrated reimbursement based on patient characteristics rather than therapy visit counts. The change, mandated by Congress in the Bipartisan Budget Act of 2018, required CMS to implement the new system on a budget-neutral basis, meaning that total spending under PDGM should equal what it would have been under the old system.
To enforce this requirement, under section 1895(b)(3)(A)(iv) of the Social Security Act, CMS must make permanent and temporary adjustments if actual spending diverges from what it would have been under the prior system. The statute does not specify the frequency or exact methodology for these adjustments, leaving room for interpretation and dispute. In practice, this has meant repeated downward adjustments: between 2020 and 2025, CMS applied a series of permanent cuts totaling about 13 percent of the base payment rate to offset what it viewed as higher-than-expected spending under PDGM. CMS now contends that further divergence has occurred, arguing that provider behavior continues to inflate payments, thereby justifying additional permanent and temporary reductions in the 2026 proposed rule. Providers strongly dispute this methodology, countering that CMS’s approach has already driven spending below the intended budget-neutral target and left agencies underfunded.
CMS contends that without such corrections, Medicare would be overpaying for home health care, undermining the budget-neutrality requirement.
Home health providers vigorously disagree. They argue that total Medicare spending on home health has already fallen below earlier projections and that CMS is misattributing the impact of pandemic disruptions, workforce shortages, and the growth of Medicare Advantage to PDGM. Providers argue that what Congress intended as a safeguard against overpayment has become a mechanism for rolling annual cuts. This dispute over what PDGM has actually done to Medicare spending now frames the debate over the 2026 proposal, with CMS insisting it is meeting statutory obligations and providers warning that access and patient care are at risk.
Stakeholder Reaction
CMS’s proposal prompted broad and strongly worded responses from across the home health sector. Provider associations, hospital groups, and patient advocates argue that the scale of the cuts could accelerate agency closures and create new gaps in access to home health services. Some lawmakers have echoed those warnings, while MedPAC and some fiscal analysts point to high margins as evidence that the reductions are justified.
The National Alliance for Care at Home called the update “alarming” and warned it would reduce services and create “new home health deserts.” Alliance President Steve Landers described the approach as negligent, urging CMS to focus on fraud prevention and modernization. The Alliance also raised a more technical objection: that CMS’s methodology for calculating the cuts may have been distorted by aberrant billing patterns from fraudulent providers, particularly in Los Angeles County, California. According to the Alliance’s analysis, agencies in that region have exhibited unusual case-mix and utilization trends, and their claims data disproportionately influenced CMS’s estimate of overpayments. The Alliance argues that CMS’s analysis may have inadvertently incorporated data distortions from regions with high fraud incidence, thereby skewing national payment estimates.
LeadingAge, representing nonprofit providers, went further. Its CEO, Katie Smith Sloan, called the proposal a “death knell” for many agencies, pointing to declining agency counts in most counties. Both groups emphasize that inflation and workforce shortages have already strained operations; additional reductions, they contend, could push fragile agencies out of the market.
Describing HHAs as “key partners to hospitals in Medicare beneficiaries’ recoveries,” the American Hospital Association cautioned that budget-neutrality reductions to the base payment rate could jeopardize patient access and complicate hospital discharge planning.
Recognizing the political significance of the Medicare-eligible population, lawmakers were attentive to home health policy issues even before the release of the proposed rule. The Preserving Access to Home Health Act, introduced in 2023, would have repealed certain PDGM-based payment adjustments and required MedPAC to account more fully for trends in Medicare Advantage, Medicaid, and other payers when evaluating HHAs. Days before CMS released its proposed rule in June, Senators Marsha Blackburn (R-TN) and Susan Collins (R-ME) sent a letter urging the agency to forego payment reductions, warning that such cuts would “dramatically curtail” seniors’ access to care.
Policy Rationale and CMS Perspective
Not all observers opposed the proposal. CMS’s approach is consistent with MedPAC’s recommendation for a 7 percent base rate reduction. The commission maintains that home health payment levels remain more than adequate to cover costs and that corrections are necessary to align spending with policy intent.
CMS has framed the adjustments as technical corrections required by statute rather than discretionary policy choices. At the same time, agency officials have acknowledged concerns about program integrity, including unusual billing spikes in certain regions, as referenced in the National Alliance for Care at Home’s comment letter. Critics argue that this approach penalizes compliant providers alongside bad actors.
More recently, in early September 2025, bipartisan lawmakers introduced the Home Health Stabilization Act of 2025 (H.R. 5142), which would pause CMS’s proposed home health cuts for two years. Sponsored by Representatives Kevin Hern (R-OK) and Terri Sewell (D-AL), the bill would require the Secretary of Health and Human Services to issue a special rule for calendar years 2026 and 2027 offsetting the proposed reductions in full. Proponents argue the pause would give Congress, CMS, and stakeholders time to reassess PDGM’s implementation, correct methodological flaws, and address fraud concerns without destabilizing access to care.
The measure has garnered strong support from provider groups, including the National Alliance for Care at Home and LeadingAge, which describe it as essential to preserving patient access and preventing widespread agency closures. However, policy analysts caution that the bill faces steep odds in Congress, with some labeling it a “high-stakes, low-odds” effort. Although passage appears uncertain, the legislation underscores the intensity of political pressure CMS now faces and signals a growing bipartisan interest in reexamining how home health payments are set under Medicare.
Medicare Advantage
While not directly addressed in the proposed rule, trends in Medicare Advantage utilization (which serves more than half of all beneficiaries) provide important context for understanding how market forces influence the home health sector.
In its June 2025 report to Congress, MedPAC noted that about 9.1 percent of MA enrollees used home health in 2021, compared with 10.1 percent of FFS beneficiaries. The report also highlighted differences in admission patterns. Post-acute admissions were more common in MA than in FFS, while community-based admissions were less frequent. This trend could suggest that MA plans have identified home health as a cost-efficient alternative to skilled nursing or inpatient rehabilitation facilities following acute care discharges. Among beneficiaries who received home health services, MA users averaged 18.2 visits per year, compared with 20.4 visits in FFS. MedPAC observed that this difference may be explained by MA enrollees accessing supplemental benefits not available under FFS.
These findings carry implications for payment policy. As MA enrollment continues to grow, agencies may see their caseloads shift toward more post-acute patients, often with fewer visits per episode. A better understanding of the distinctions between how FFS and MA deploy home health could facilitate a more accurate evaluation of the overall adequacy of the benefit and help ensure that payment reforms in one segment do not destabilize the other.
What Comes Next
Barring any delays related to the ongoing government shutdown and resulting administrative interruptions, CMS typically releases the final CY 2026 rule by November 1, with the new payment policies taking effect on January 1, 2026.
Whether CMS modifies its methodology, Congress advances legislation such as the Home Health Stabilization Act, or the proposed cuts move forward largely intact, the outcome will significantly impact the financial viability of thousands of agencies and the care available to millions of beneficiaries. The debate highlights a broader question: how Medicare can strike a balance between fiscal stewardship and ensuring that essential home-based care remains accessible to those who need it.