Home Health Braces For Potential $1 Billion Cut In Medicare Payments

Key Takeaways:

• CMS released a proposed rule changing Medicare payments to home health agencies in 2026.
• A 2.4% routine payment increase would add approximately $425 million in funding.
• Proposed cuts total over $1.5 billion, including permanent and temporary adjustments.
• Overall, Medicare payments to home health agencies are estimated to decrease by 6.4%, or about $1.135 billion, compared to 2025.
• The financial impact could significantly affect companies relying heavily on Medicare payments.

CMS Proposes Significant Cuts to Home Health Medicare Payments

Introduction

The Centers for Medicare & Medicaid Services (CMS) has released a proposed rule outlining substantial changes to Medicare payments for home health agencies (HHAs) in calendar year 2026. While there is a routine payment increase on the horizon, the overall effect of the proposed changes would result in a significant net decrease in funding for these agencies.

Routine Payment Increase

As part of the annual updates mandated by law, CMS has proposed a 2.4% routine payment increase for HHAs. This adjustment is expected to add approximately $425 million in funding. The increase aims to address factors such as inflation and the rising costs associated with providing home health services.

Breakdown of Proposed Cuts

Despite the proposed increase, three other adjustments in the rule would collectively reduce payments by a much larger margin:

• Permanent Behavior Adjustment

CMS proposes a reduction of approximately 3.7%, amounting to $655 million. This adjustment accounts for changes in provider behavior that impact Medicare spending, aiming to correct for any unintended increases in costs due to policy changes.

• Temporary Adjustment

An additional decrease of 4.6%, or $815 million, is proposed as a temporary adjustment. This reduction is intended to recoup excess payments made in previous years, ensuring that reimbursement levels align with actual costs and utilization patterns.

• Outlier Payment Formula Change

A modification to the Fixed Dollar Loss (FDL) ratio would result in an additional 0.5% reduction, equating to $90 million. This change affects payments for cases that incur unusually high costs, adjusting the threshold for outlier payments.

Overall Impact on Medicare Payments

Cumulatively, these adjustments would lead to a net decrease of 6.4% in Medicare payments to home health agencies, totaling approximately $1.135 billion compared to 2025. CMS stated, “Overall, Medicare payments to home health agencies in 2026 are estimated to decrease by 6.4%, or approximately $1.135 billion.”

Implications for Home Health Agencies

The considerable reduction in funding is poised to have significant implications for home health agencies nationwide. Companies like Addus HomeCare Corp, which relies on home health services for roughly 5% of its revenue, could feel the financial strain. Moreover, for entities where home health accounts for a larger portion of income—such as those with 63% revenue dependency—the impact could be even more profound.

Agencies may need to reassess operational strategies, potentially affecting staffing, service availability, and patient care quality. The proposed cuts could lead to challenging decisions as organizations strive to balance financial viability with their mission to provide essential home health services.

Conclusion

As CMS moves forward with its proposed rule, home health agencies are bracing for a challenging financial landscape in 2026. The juxtaposition of a modest increase overshadowed by significant cuts underscores the complexity of healthcare funding within the Medicare system. Stakeholders in the home health sector will be closely monitoring developments, with hopes of advocating for adjustments that ensure sustainable operations and continued quality care for patients relying on these vital services.