On November 28, 2025, after a prolonged wait due to the government shutdown, CMS issued the 2026 Medicare final payment rule for home health agencies (HHAs), resulting in an aggregate estimated payment decrease of 1.3%, or $220 million. This came as a relief to industry stakeholders, considering the proposed payment rule issued in June called for an unprecedented cut of 6.4%, or $1.135 billion.
What Are the Key Payment Provisions?
Table 1 presents a summary comparison of the proposed and final provisions of the 30-day Medicare HHA payment rate. Details include small payment increases for recalibration of wage index and case-mix weights, adjustments that the industry has become accustomed to annually, as well as an inflationary increase of 2.4%. But the most significant—and controversial—factors impacting the rates include the permanent and temporary adjustments applied to address what CMS believes to be overpayments resulting from the implementation of the Patient-Driven Groupings Model (PDGM) in 2020.
| Medicare Home Health Payment Rule | ||
|---|---|---|
| Rate Item | 2026 Proposed Rate Provisions | 2026 Final Rate Provisions |
| 2025 Payment Per Period | $2,057.35 | $2,057.35 |
| Permanent adjustment | 4.059% ↓ | 1.023% ↓ |
| Case-mix neutrality adjustments | 0.51% ↑ | 0.52% ↑ |
| Wage-index neutrality adjustments | 0.19% ↑ | 0.25% ↑ |
| Update percentage | 2.4% ↑ | 2.4% ↑ |
| Temporary adjustment | 5% ↓ | 3% ↓ |
| 2026 Proposed Payment Per Period | $1,933.61 | — |
| 2026 Final Payment Per Period | — | $2,038.22 |
Source: CMS 2026 proposed payment rule issued June 30, 2025, and 2026 final payment rule issued November 28, 2025.
By statute, CMS was required to make assumptions about potential changes in HHA behaviors that could occur with the implementation of PDGM. For the period of 2020 through 2026, the law also required CMS to annually estimate the impact on aggregate expenditures of differences between assumed and actual HHA behavior changes and, if needed, make permanent or temporary adjustments to offset payments for such differences.
Permanent Adjustment
To date, CMS has used a permanent rate adjustment to prevent future overpayments for behavior changes related to PDGM, cutting rates by 3.925% in 2023, 2.890% in 2024, and 1.975% in 2025. The 2026 final rule includes another permanent adjustment to cut the rate by 1.023%, which is substantially less than the 4.059% proposed cut. After much advocacy effort by industry stakeholders, CMS agreed that behavior changes after 2022 might be attributed to factors unrelated to the implementation of PDGM, such as the introduction of the OASIS-E assessment, national expansion of the Value-Based Purchasing (VBP) demonstration model, and increased Medicare Advantage penetration. Based on CMS’s analysis in the final rule, future permanent adjustments are not anticipated.
Temporary Adjustment
CMS’s use of the temporary adjustment is to recoup prior overpayments related to PDGM implementation and to account for budget neutrality. CMS continues to assert that payments in 2020 through 2024 were overpaid by $4.7 billion, resulting in a 3% temporary rate cut for 2026. This temporary adjustment is estimated to recoup $471 million of the asserted $4.7 billion overpayment. HHAs will continue to face several more years of temporary adjustments without additional intervening action.
Wage Index
Because HHAs are paid by Medicare based on the wage index of the Core Based Statistical Area (CBSA) in which each patient lives, the financial impact of the rate update is very specific based on each HHA’s service area. For example, the 2026 Houston, Texas wage index is being cut by 4.5%, while the rural Montana wage index is being increased by an unprecedented 29.4%. Table 2 presents a summary of the combined financial impact of the 2026 payment rate and wage index in select CBSAs.
| 2026 Home Health Medicare Wage Index Impacts | ||||
|---|---|---|---|---|
| CBSA Code | Example Locations | 2025 Wage Index Adjusted Payment | 2026 Wage Index Adjusted Payment | % Change |
| 25420 | Harrisburg, PA | $1,918 | $2,047 | +6.7% |
| 26420 | Houston, TX | $2,086 | $1,997 | -4.3% |
| 31340 | Lynchburg, VA | $1,695 | $1,881 | +11.0% |
| 44180 | Springfield, MO | $1,727 | $1,726 | -0.1% |
| 99913 | Rural Idaho | $1,629 | $1,559 | -4.3% |
| 99927 | Rural Montana | $1,878 | $2,257 | +20.2% |
Note: Rates above are before application of case-mix weight, VBP adjustment, or sequestration. | ||||
Calculations based on CMS 2025 final payment rule issued November 1, 2024, and 2026 final payment rule issued November 28, 2025.
Other Provisions
Other provisions of the final rule include a 2.4% increase to low utilization payment adjustment rates, which, based on 2024 Medicare payments, represented 6.9% of the total aggregate PDGM payment periods. In addition, CMS is increasing the fixed dollar loss ratio used in the calculation of outlier payments, which by statute are not to exceed 2.5% of total PDGM payments.
What’s the Impact of VBP?
One of the best strategies HHAs can employ to offset Medicare rate cuts is by outperforming their peers in the VBP program, which allows HHAs the opportunity to receive up to a 5% increase or decrease in Medicare payments based on how the HHA performs in designated quality outcome measures. 2026 marks the second year in which HHAs will receive a VBP payment adjustment. With the potential for additional Medicare rate cuts in future years, HHAs cannot afford to perform poorly in VBP.
For more information on how your HHA may be impacted by the 2026 Medicare final payment rule, download a copy of the payment rates for your CBSA, or contact an advisor at Forvis Mazars.