On June 30, Centers for Medicare & Medicaid Services (CMS) released the Calendar Year (CY) 2026 Home Health Prospective Payment System (HH PPS) proposed rule. This annual rule outlines significant changes to Medicare home health payment policies, including rate adjustments, Patient-Driven Groupings Model (PDGM) recalibration, quality reporting updates and value-based purchasing modifications.
For home health agencies (HHAs), this year’s proposed rule carries major financial and operational implications. CMS estimates an overall $1.135 billion decrease in aggregate payments in CY 2026 compared to CY 2025, largely driven by permanent behavioral adjustments, temporary payment recoupments and changes to outlier payment thresholds.
In addition to payment updates, the rule introduces policy revisions to the Home Health Value-Based Purchasing (HHVBP) model, face-to-face encounter requirements, provider enrollment safeguards and durable medical equipment regulations.
Overview and resources
The proposed rule includes updates to the Medicare fee-for-service (FFS) HH PPS payment rates based on changes set forth by CMS and those previously adopted by the U.S. Congress. Among the proposed updates are:
recalibration of the PDGM case-mix weights, low utilization payment adjustment (LUPA) thresholds, functional levels and comorbidity adjustment subgroups;
payment adjustments to reflect the impact of differences between assumed behavior changes and actual behavior changes on estimated aggregate payment expenditures under the HH PPS;
updates to the HH quality reporting program (QRP);
updates to the Expanded HHVBP Model;
updating HHA Conditions of Participation (CoPs);
updates to face-to-face encounter policies;
strengthening policies related to Medicare and Medicaid provider enrollment; and
updates to durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) related policies.
Program changes will be effective for discharges on or after Jan. 1, 2026, unless otherwise noted. CMS estimates the overall impact of this proposed rule to be a decrease of $1.135 billion in aggregate payments to HHAs in CY 2026 over CY 2025. That includes a $425 million increase due to the proposed home health payment update, a $655 million decrease due to the proposed permanent behavior adjustment, a $815 million decrease due to the proposed temporary adjustment and a $90 million decrease due to the proposed fixed-dollar loss (FDL) amount for outlier payments.
CMS has a different estimate of $786 million for the proposed temporary adjustment recoup for CY 2026 in their discussion in the rule. DataGen has reached out to CMS for clarification since this does not match the impact of $815 million stated in table 1 on the Federal Register page 29115 of the proposed rule.
This proposed rule and other resources related to the HH PPS are available on CMS’ Home Health Prospective Payment System Regulations and Notices webpage.
Comments on this proposed rule were due to CMS on Aug. 29 and submitted electronically by using the website’s search feature to search for file code “CMS-1828-P.”
Behavioral assumptions and adjustments
Since CY 2020, CMS has been required by the Bipartisan Budget Act (BBA) of 2018 to use a 30-day period of care as the unit of payment in place of the prior 60-day episode of care. Part of this statute requires CMS to make assumptions about behavior changes that could occur as a result of implementing a 30-day unit of payment and case-mix adjustment factors that eliminated the use of therapy thresholds when calculating the CY 2020 standard payment amount.
The Consolidated Appropriations Act (CAA) of 2023 requires CMS to determine the impact of differences between assumed and actual behavior on estimated aggregate expenditures, beginning in CY 2020 and ending with CY 2026, and make permanent and temporary adjustments as necessary through notice and rulemaking. CMS is also required to provide both the data sets underlying the simulated 60-day episodes and sufficient time for stakeholders to make comments on the development of the HH PPS payment rate.
In the CY 2023 HH PPS final rule, CMS adopted the methodology to determine the impact on estimated expenditures between assumed and actual behavioral changes, which are used for evaluating the budget neutral 30-day payment rates for CYs 2020–2026 under the PDGM. These rates will be compared to what they would have been under the 153-group case-mix system and 60-day unit of payment that was in place prior to the establishment of the PDGM.
After analyzing 30-day period standard payment rates for CYs 2020–2023 to account for changes in actual versus assumed behavior, CMS found that the actual rates should have been lower than the adopted rates (which were calculated using assumed behavior).
Using this same methodology with CY 2024 claims, CMS has determined that the 30-day base payment rate for CY 2024 should have been $1,916.77 based on actual behavior, rather than the adopted rate of $2,038.13 based on assumed behaviors, including all behavior adjustments that were applied to the CY 2023 30-day base payment rate.
This results in an updated total permanent adjustment of –5.954% that needs to be applied to the CY 2026 payment rate to account for expenditures for CYs 2020–2024. Since a portion of this adjustment has already been accounted for in the CYs 2023, 2024 and 2025 rates, CMS is proposing that the remaining permanent adjustment for CY 2026 will be −4.059%.
In past years, CMS only applied half of this full permanent behavioral adjustment to reduce the burden on providers. To mitigate continued accrual of the temporary adjustment and to reduce the need for large permanent adjustments in the future, CMS is proposing to apply this full adjustment to the CY 2026 30-day base payment rate.
The same CMS analysis also found that, by updating the HH PPS payments rates for actual behaviors in CYs 2020–2024, total estimated payments for these five years were higher than they should have been. CMS estimates these overpayments to be:
$873 million for CY 2020;
$1.211 billion for CY 2021;
$1.405 billion for CY 2022;
$971 million for CY 2023; and
$840 million for CY 2024.
This results in a combined $5.301 billion in temporary payment reconciliation, requiring an additional temporary adjustment to the 30-day payment rate. Analyses by CMS and MedPAC have shown that home health payments under the PDGM continue to be higher than those of the prior 153-group system and are also in excess of costs.
CMS proposes to begin recoupment of these overpayments through a temporary adjustment to the CY 2026 base payment rate. Rather than collecting the full temporary dollar amount in a year, which would require an approximate 34% reduction to the CY 2026 base payment rate, CMS is proposing to apply this temporary adjustment in numerous smaller adjustments beginning with CY 2026.
This temporary adjustment proposed for CY 2026 would be −5.0% and would credit approximately $786 million to the temporary dollar amount. The estimated $786 million anticipated to be collected is based on an estimate of the number of 30-day periods that would occur in CY 2026 and may not reflect the actual dollar amount if the actual number of 30-day periods and other utilization trends in CY 2026 differ from the estimated.
CMS will continue to analyze the data each year through CY 2026 to determine if more temporary adjustments are warranted and will apply these adjustments in future rulemaking as appropriate.
Wage index and labor-related share
As in prior years, CMS proposes to use the most recent inpatient hospital wage index, which is the Federal Fiscal Year (FFY) 2026 pre-rural floor and pre-reclassification hospital wage index, to adjust payment rates under the HH PPS. The wage index is applied to the labor-related portion of the HH payment rate. CMS previously adopted the use of a labor-related share of 74.9% for CY 2024 and onwards.
Per the CY 2025 final rule, counties that have a different wage index value than the CBSA or rural area into which they are designated after applying the 5% wage index cap will use a five-digit wage index transition code, beginning with “50.” This will apply until the county’s new CBSA-based wage index is at least 95% of the county’s wage index from the previous year. This is in addition to the permanent 5% stop loss on the wage index previously finalized.
The wage index and labor-related share budget neutrality factors for CY 2026 are proposed to be 1.0019 for the standard rate and 1.0004 for the per-visit rates. These factors ensure that aggregate payments made under the HH PPS are not greater or less than what would have otherwise been made if wage adjustments had not changed.
A complete list of the wage indexes proposed for CY 2026 is available on the CMS website.
Takeaways
The CY 2026 HH PPS proposed rule signals another significant shift in Medicare’s approach to home health reimbursement and quality reporting. With key updates to the Patient-Driven Groupings Model (PDGM), expanded behavioral adjustments and refinements to the Home Health Value-Based Purchasing (HHVBP) Model, HHAs must carefully evaluate the proposed changes to anticipate operational and financial impacts.
Providers use comment periods to share feedback with CMS and begin assessing strategies for adapting to the upcoming changes — in this case particularly around payment rate recalibrations, quality reporting requirements and temporary payment adjustments.
For full details, access the proposed rule via the Federal Register or review additional resources on the CMS website.
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