CMS Proposes 6.4% Medicare Payment Cuts to Home Health Agencies for 2026
The Centers for Medicare & Medicaid Services (CMS) released proposed updates for 2026 Medicare payment policies affecting home health agencies (HHAs), forecasting a significant reduction in payments by 6.4%, equating to approximately $1.135 billion. The proposed payment rate per 30-day period is set to decrease from $2,057 to $1,934, marking a complex shift driven by permanent and temporary adjustments tied to CMS's assessment of spending patterns following the 2020 transition to the Patient-Driven Groupings Model (PDGM). These adjustments total a 9.059% cut, with permanent reductions accumulating to nearly 13% over four years and an inaugural temporary 5% cut proposed for 2026, which may recur in subsequent years.
CMS attributes these reductions to the underperformance of PDGM in achieving budget neutrality due to behavioral changes in HHAs that increased Medicare spending beyond projections. Despite these cuts, traditional Medicare remains the primary and most favorable payer for HHAs, often compensating for shortfalls from Medicare Advantage (MA), Medicaid, and other payers. With MA enrollment surpassing traditional Medicare at 51% nationally, the financial impact of these cuts will vary by HHA based on geographic location and payer mix.
HHAs are advised to perform detailed financial impact analyses tailored to their service areas and payer compositions to prepare budgets for 2026. Strategic responses include engaging in advocacy through national and state industry groups to influence legislative understanding and policy outcomes. Additionally, HHAs should critically evaluate Medicare Advantage contracts to ensure rates at least cover direct and administrative costs, negotiating where necessary.
The Value-Based Payment (VBP) demonstration project, which adjusts payments by up to 5% based on quality and efficiency metrics, presents an opportunity to offset payment reductions. HHAs are encouraged to optimize care quality, patient outcomes, and experience measures to improve VBP performance.
Given that labor costs account for over 70% of HHA revenues, an assessment of compensation structures is crucial. HHAs should revisit clinical and administrative compensation models to ensure they adequately incentivize care quality, patient experience, and financial performance rather than merely visit volumes.
These proposed changes reflect CMS's ongoing adjustments to payment policies aimed at controlling costs and incentivizing value-based care within home health services. HHAs must adopt multifaceted approaches involving advocacy, contract negotiation, performance improvement, and operational efficiency to navigate the evolving Medicare payment landscape effectively.