On June 30, 2025, CMS issued its annual Home Health Prospective Payment System Proposed Rule for Calendar Year (CY) 2026 (the Proposed Rule). The Proposed Rule continues the agency’s policy of using provisions of the Bipartisan Budget Act of 2018 to make permanent, aggressive cuts to Medicare home health rates and, for the first time, uses that authority to enact even deeper “temporary” cuts to the rates to correct for behavioral adjustments made in response to the Patient-Driven Groupings Model (PDGM) adopted in 2020. In sum, CMS proposes to cut home health rates by 7.159 percent from 2025 rates. The proposed cut would be even more aggressive but for a positive 2.4 percent offset required by statute due to a positive market basket percentage increase. Comments to the Proposed Rule must be submitted by August 29, 2025.
The Bipartisan Budget Act of 2018 and the Behavioral Adjustments
In the Bipartisan Budget Act of 2018 (BBA ’18), Congress directed CMS to revamp its methodology for calculating payments for home health encounters. First, CMS was to calculate a new payment rate based upon a 30-day episode of care versus a 60-day episode of care used under the prior methodology. Second, CMS was to eliminate therapy thresholds as a determinant of the amount of payment per episode of care. Third, Congress required CMS to make adjustments to the new payment rate to ensure that the total amount of home health expenditures in 2020 would not be greater than what expenditures would be if Congress had not changed payment methodologies. 42 U.S.C. § 1395fff.
BBA ’18 included two additional features that have been the source of controversy between CMS and the home health industry. After calculating the new base payment rate for 2020, Congress required CMS to make predictions as to whether the new payment methodology would change provider behavior and, if so, CMS was to make an adjustment to the 2020 rate to offset these predicted behavioral changes.
But because predicting behavior is hard, Congress also instructed CMS, beginning in CY 2020 and lasting until 2026, to compare its predictions to actual changes in behavior and, depending on the results, make two types of adjustments. First, CMS could make a temporary positive or negative adjustment to the rates for the upcoming year to account for any underpayment or overpayment in the prior year resulting from the difference between its behavioral predictions and actual behavioral changes. Second, CMS could make a permanent adjustment to the home health rates going forward—again, either a positive or negative adjustment depending on the difference between its predicted and actual behavior changes. 42 U.S.C. § 1395fff(b)(3)(D).
CMS implemented the changes required by BBA ’18 and established the PDGM in CY 2020. CMS predicted at that time that changes in behavior would increase aggregate payments and adjusted the rates to offset the budgetary impact of those changes. Specifically, CMS predicted that providers would continue to provide services to meet the 30-day episode of care and avoid partial payments (LUPAs). CMS also predicted that providers would more aggressively identify comorbid diagnoses in order to increase payments under the patient-centric model. See 84 Fed. Reg. 60478, 60512 (Nov. 8, 2019).
In the CY 2023 rule, in accordance with BBA ’18, CMS began to further adjust the rates to account for differences between predicted and actual behavior. To determine actual behavioral changes for purposes of that comparison, CMS took actual claims data from CY 2020 and repriced those claims to determine how much Medicare would have expended under the pre-PDGM methodology. In other words, instead of monitoring actual changes in behavior, CMS simply compared the cost of the same claims before and after PDGM and treated the difference as the financial impact of actual changes in behavior. Based on that analysis, CMS determined in CY 2023 that unaccounted for changes in behavior had increased aggregate expenditures and applied permanent downward adjustments to prevent those behavioral changes from increasing expenditures on a prospective basis.
Home health providers took exception to CMS’s approach to comparing predicted and actual behavior changes. In 2024, providers filed suit challenging CMS’s methodology. But the court dismissed their case because it determined that the providers had not exhausted their administrative remedies prior to initiating their suit. National Association for Home Care & Hospice v. Becerra, 731 F. Supp. 3d 78, 93 (D.D.C. 2024).
CMS took the same controversial approach in the CY 2024 and 2025 rules and again reduced the rates based on perceived difference between predicted and actual changes in behavior. However, in each of years 2023 through 2025, CMS acknowledged that applying the full permanent adjustment would be burdensome to providers, and ultimately finalized only half of the permanent adjustment it determined was necessary to reconcile assumed and actual behavioral changes.
In the 2026 Proposed Rule, CMS continues to apply its controversial methodology for accounting for the differences between predicted and actual behavior changes. CMS estimates based on the latest claims data (through CY 2024) that a permanent adjustment of negative 4.059 percent to the prior year’s rate is needed to adjust the rates on a prospective basis to correct for the difference between assumed and actual behavior changes.
CMS also proposes, for the first time since implementing PDGM, to adopt temporary behavioral adjustments in CY 2026. Based on its analysis of claims data between CYs 2020 through 2024, CMS estimates that differences between assumed and actual behavioral changes increased aggregate program expenditures by approximately $5.3 billion. The agency projects that a budget neutrality adjustment of approximately negative 34 percent would be needed to recoup that amount in CY 2026. Acknowledging an adjustment of that magnitude would impose a significant hardship on HHAs, the agency has proposed a temporary adjustment of negative 5 percent in CY 2026, with the expectation that it will make up the difference with additional temporary adjustments in future years. This downward adjustment, along with the potential for future recoupments beyond 2026, is a significant development for home health agencies.
Additional Proposals
CMS also proposes to apply an update factor of positive 2.4 percent to the national, standardized 30-day payment rate and per-visit rates. The proposed update factor reflects a positive 3.2 percent market basket percentage increase and a negative 0.8 percentage productivity adjustment. CMS also proposes reducing the rates by 0.5 percent to offset the budgetary impact of outlier payments. This positive update factor of 2.4 percent partially offsets an even higher downward adjustment CMS proposes arising from the requirements of the Bipartisan Budget Act of 2018 to account for the differences between predicted and actual behavior changes. CMS’s proposal lowers rates by 9.059 percent, but the 2.4 percent upward adjustment arising from the market basket increase lowers the overall rate cut to negative 7.159 percent. This rate cut is projected to reduce payments to HHAs by 6.4 percent in CY 2026 compared to CY 2025—a decrease of $1.135 billion.
CMS also proposes to expand the types of practitioners who can perform the mandatory face-to-face encounter preceding the start of home health care. Under the existing rule, the face-to-face encounter must be performed by the certifying physician or a practitioner who cared for the patient in the acute or post-acute facility from which the patient was directly admitted to home health care. Under the new rule, physicians, nurse practitioners, clinical nurse specialists and physician assistants will be permitted to perform the face-to-face encounter regardless of whether they are the certifying practitioner or whether they cared for the patient in the acute or post-acute facility from which the patient was admitted to home health care.
Finally, CMS is proposing to expand the rules governing the circumstances in which it can apply the revocation of a provider’s billing privileges retroactively, which would permit the agency to recoup payments already made. The new proposed bases for retroactive revocation include the following:
- Revocations based on a lapse in comprehensive liability insurance;
- Revocations based on the submission of false or misleading information in the enrollment application;
- Revocations based on the failure to timely report a change in ownership, adverse legal action, or a change in practice location; and
- Revocations based on the State’s suspension or revocation of the physician’s or practitioner’s ability to prescribe on or more drugs.
Comments to the Proposed Rule are due on August 29, 2025. The Proposed Rule is available here. The CMS fact sheet is available here.
