On November 28, 2025, CMS issued its annual Home Health Prospective Payment System Final Rule for Calendar Year (CY) 2026 (the Final Rule). The Final Rule continues recent trends of using provisions of the Bipartisan Budget Act of 2018 (BBA ’18) to decrease Medicare home health rates through permanent adjustments, and, for the first time, uses that authority to enact “temporary” cuts to the rates to correct for behavioral adjustments made in response to the Patient-Driven Groupings Model (PDGM) adopted in 2020. However, the Final Rule has finalized a smaller decrease than that in the Proposed Rule. The Final Rule makes a -1.023 percent permanent adjustment and a -3.0 percent temporary adjustment to the base payment rates. CMS estimates that Medicare payments to home health providers under the Final Rule will decrease in the aggregate by approximately 1.3 percent, or $220 million, compared to CY 2025. This reflects a decrease from the estimated 7.159 aggregate decrease proposed in the July Proposed Rule.
Background on The Bipartisan Budget Act of 2018 and the Behavioral Adjustments
In BBA ’18, Congress directed CMS to revamp its methodology for calculating payments for home health encounters. CMS was directed 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. BBA ’18 also directed CMS to eliminate therapy visit thresholds as a determinant of the amount of payment per episode of care. Additionally, BBA ’18 directed CMS to adjust 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 payment methodologies had not changed. 42 U.S.C. § 1395fff. BBA ’18 also directed CMS to make predictions as to whether the new payment methodology would change provider behavior and, if so, to make an adjustment to the 2020 rate to offset these predicted behavioral changes.
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 anticipated budgetary impact of those changes.
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. 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. Based on that analysis, CMS determined in CY 2023 that unaccounted for changes in behavior had increased aggregate expenditures by more than predicted and, accordingly, applied permanent downward adjustments to prevent those behavioral changes from increasing expenditures on a prospective basis.
CMS took the same approach in the CY 2024 and 2025 rules and again reduced the rates based on the difference between predicted and actual changes in behavior. In prior years, CMS acknowledged that a full permanent adjustment in a single year might be burdensome to providers. Thus, in the CY 2023–2025 final rules, CMS finalized only half of the permanent adjustments.
In the CY 2026 Proposed Rule, CMS estimated based on the latest claims data that a permanent adjustment of -4.059 percent to the prior year’s rate would be needed to adjust the rates on a prospective basis to correct for the difference between predicted and actual behavior changes.
In the Final Rule, CMS considered additional data, from which CMS determined permanent adjustment of -4.162 percent would be necessary. However, again recognizing burdens that this decrease could place on providers, CMS has decided to instead finalize a -1.023 percent permanent adjustment, based only on changes in estimated aggregate expenditures as previously calculated for CYs 2020–2022.
For the first time since implementing PDGM, CMS is adopting 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. CMS projects that a budget neutrality adjustment of approximately -3.4 percent would be needed to recoup that amount in CY 2026. Acknowledging an adjustment of that magnitude would impose a significant hardship on HHAs, CMS has finalized a temporary adjustment of -3.0 percent in CY 2026, with the expectation that CMS may make up the difference with additional temporary adjustments in future years. This marks a decrease from the -5.0 percent proposed in the July Proposed Rule.
Additional Final Rules
CMS also finalized an update factor of positive 2.4 percent to the national, standardized 30-day payment rate and per-visit rates. The update factor reflects a positive 3.2 percent market basket percentage increase and a negative 0.8 percentage productivity adjustment.
CMS also has expanded the types of practitioners who can perform the mandatory face-to-face encounter preceding the start of home health care. Under the prior rule, the face-to-face encounter had to 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.
The Final Rule is available here. The CMS fact sheet is available here.
