A reprieve, but still a cut to home health spending!

Overview of the Final Rule

The Centers for Medicare and Medicaid Services (CMS) released the final rule for the Home Health Prospective Payment System (HH PPS) for 2026 later than usual this year. It was first available for review at the Federal Register’s Public Inspection Desk on Friday, November 28, 2025, which was the Friday after Thanksgiving. The official publication in the Federal Register occurred the following Tuesday, December 2, 2025.

Comparison of the Proposed and Final Rule

There were some significant changes between the Proposed and Final Rules, such as:

• Significant Changes per the Proposed Rule:
  • Overall, there was a projected decrease of $1.135 Billion, a cut of 6.4% in Home Health Spending (not PPS Payment Rates, as it is widely identified by many in the industry talking about this each year), made up of:
  • A Market Basket increase (Inflation) update of +2.4% (projected to be an increase of $425 million)
  • A cut for the Permanent Behavioral Adjustment of $655 million (-3.7%)
  • A cut for the Temporary Behavioral Adjustment of $815 million (-4.6%)
  • a cut for the change in the FDL (of the Outlier Provision) of $90 million (-0.5%)

• For comparison, the Significant Changes per the Final Rule are as follows:
  • Overall, this is supposed to be a decrease of $220 Million, a cut of 1.3% in Home Health Spending,
    • A $915 million improvement compared to the Proposed Rule
    • made up of:
  • A Market Basket increase (Inflation) update of +2.4% (projected to be an increase of $405 million)
    • $20 million less than the Proposed Rule (a decrease to the inflation $ amount, but w/the same % update)
  • A cut for the Permanent Behavioral Adjustment of $150 million (-0.5%)
    • A $515 million improvement compared to the Proposed Rule
  • A cut for the Temporary Behavioral Adjustment of $460 million (-2.7%)
    • A $355 million improvement compared to the Proposed Rule
  • a cut for the change in the FDL (of the Outlier Provision) of $15 million (-0.1%)
    • A $75 million improvement compared to the Proposed Rule

The CMS Fact Sheet outlines and expounds on the changes, but to understand the details, you will need to read the Final Rule as published in the Federal Register.

How Payment Rates Were Impacted

I will now present a brief summary of the information I identified in my analyses of the payment rates per the Proposed and Final Rules.

Note: this identifies why I recommend that all HHAs analyze the impact the Proposed and/or Final Rule is projected to have on an organization’s Medicare revenues. You will see that most HHAs will realize revenue impacts that differ from the change to home health spending that CMS identifies in each year’s Proposed and Final Rule.

• This is because CMS identifies the projected change in home health spending for all of Medicare home health, and
• The analysis conducted on your own agency will identify what the projected change will be on your Medicare revenues for the upcoming year.
• For many HHAs, the difference between these two numbers can be significant.
• Over the years, 100s of (if not a 1,000 or more) HHAs have been closed because the negative impact on their Medicare revenues in the following year was significantly greater than the change in home health spending identified by CMS and went undetected by these agencies.
• If the Proposed Rule had been finalized as initially suggested, 100s of HHAs (if not 1,000+) would have closed due to this difference in 2026.

PPS Payment Rates per the Proposed Rule

Note: CMS identified 482 CBSA/Service Areas per the Proposed Rule,

• 362 CBSA/Service Areas (75.1%) would have 415 (96.1%) of the 432 payment rates reduced.
• 164 CBSA/Service Areas (34.0%) were going to see all 432 of their payment rates decrease for 2026:
  • With an average decrease of 7.2%,
  • and the MAX decrease among the 164 CBSA/Service Areas being 11.1%.
  • Compare to the CMS identified 6.4% cut to home health spending.
• 9 CBSA/Service areas (1.9%) were going to see all 432 of their payment rates increase for 2026:
  • With an average increase of 5.4%,
  • and the MAX increase among the 9 CBSA/Service Areas being 25.5%.

Had the Proposed Rule been finalized “As Is,” I don’t think the industry realized the catastrophic impacts it and the beneficiaries we serve would have faced. This would likely have been comparable to the Interim Payment System (IPS) that ran from October 1, 1998, through September 30, 2000. Many of you will remember the debacle that was the IPS. For those of you who don’t (or weren’t at a management level at the time), IPS led to the closure of nearly 40% of all per-IPS HHAs between 1998 and 2003. At the rates noted above, I would have expected between 500 and 1,500 HHAs to have closed or terminated their Medicare licenses by the end of 2026, with high closure rates continuing into 2027 and likely 2028. So, the home health industry dodged a bullet with the 2026 Final Rule.

PPS Payment Rates per the Final Rule

Note: CMS identified 482 CBSA/Service Areas per the Final Rule,

• 74 CBSA/Service Areas (15.4%) would have 409 (94.7%) of the 432 payment rates reduced.
• 0 CBSA/Service Areas were going to see all 432 of their payment rates decrease for 2026.
  • So, all CBSA/Service Areas will have some of their 432 of their payment rates increase for 2026.
• 129 CBSA/Service Areas (26.8%) will have at least 399 (92.4%) of their 432 payment rates decrease for 2026:
  • With an average decrease of at least 3.0%,
  • and the MAX decrease among the 129 CBSA/Service Areas being 6.4%.
  • Compare to the CMS identified 1.3% cut to home health spending.
• 73 CBSA/Service areas (15.1%) were going to see all 432 of their payment rates increase for 2026:
  • With an average increase of at least 2.8%,
  • and the MAX increase among the 73 CBSA/Service Areas being 31.3%

Summary

Regarding the Medicare payment rates per the 2026 HH PPS Final Rule:

• Yes, the industry, and the beneficiaries we serve dodged a bullet
  • Although we are still dealing with a cut to home health spending, and the Medicare payment rates are generally decreasing,
  • The reduction to home health spending was only 19.4% of what it was in the Proposed Rule
  • So, even though this will squeeze Medicare Margins even more,
  • It won’t be as catastrophic as what it would have been under the Proposed Rule, which would have likely caused a severe closure rate of HHAs in CYs 2026 and CY2027,
  • Reminiscent of what occurred between 1998 and 2003, due to the IPS
• As a side note, the MedPAC has once again recommended that CMS cut the Medicare payment rates by 7%
  • MedPAC’s CY 2026 recommendation, and again
  • MedPAC’s CY 2027 recommendation

Conclusion

• As Medicare Margins decrease for agencies, HHAs must learn to do more with less, something CMS has been pushing on us for the last 20+ years
• HHAs need to become proactive in this endeavor.
  • If the 2026 Proposed Rule didn’t make that clear, I don’t know what will
• HHAs need to work to:
  • Learn or engage to have your Medicare payment rates analyzed/projected with the publication of each year’s Proposed and Final Rules (especially if CMS projects a reduction in home health spending of 2.5% or more).
  • Become more cost-effective and financially efficient
  • Incorporate budgeting (from a Starter to a Full-Detailed budget) in their arsenal to generate and provide better information to management to help better manage the budgeted year and become more cost-effective
  • Learn how to detect and minimize the overutilization of resources to position your agency to be able to become cost-effective and financially efficient (as you’ll never become as cost-effective as you could be so long as any overutilization exists)
  • And begin to analyze your financial and operational results periodically (should be monthly) to give yourself the information you will need to become cost-effective and financially efficient

As you become more knowledgeable of the nuances of our agency’s operations (including financial), you will increase your knowledge and understanding of how to do more with less, making it a little easier to deal with the cuts CMS continues to make (so long as reasonable, as the Proposed Rule would have troubled even the best run agencies), positioning your agency for success for many years to come.