Over the past two years, CMS has proposed large cuts to home health Medicare payments, leaving providers concerned over their ability to deliver care and run their businesses. Even when CMS finalized cuts that were smaller than their original proposals, providers still faced challenges over thin margins.
The 2025 proposed rule brings additional cuts that may further strain the industry’s ability to serve all patients. That was already a challenge before the pandemic, when only 77% of those needing care in 2018 received it. Six years later, that number is down to 65%.
“It’s a critical opportunity for us as an industry to make sure that the leaders at CMS, and the leaders in Congress, are recognizing the value of home health services within the continuum of care and within the entire health care ecosystem,” says John Gochnour, President and COO of The Pennant Group. “The home health proposed rule doesn’t do that.”
Here are three insights home health providers must know about the new rule and how they can successfully navigate it.
Not all providers are affected equally
The proposed rule includes a payment decrease in the aggregate of 1.7%, translating to about $280 million in lost revenue. Yet the impacts vary widely based on geography and patient case mix. Some factors, such as wage index, have seen erratic changes year after year.
“Turnover and wage costs are not changing abruptly. You’re not all of a sudden paying more one year and then less the next year,” says Scott Pattillo, Chief Strategy Officer, Homecare Homebase. “So it’s really important that you know — based on your geographic mix, your patient mix, your patient types and your acuity types — how it’s going to impact your agencies.”
The industry’s financial pressures are mounting — and the new rule doesn’t always account for that
Running a home health business is challenging enough on its own. It gets even trickier when CMS views the industry substantially differently than providers do.
“CMS is of the opinion that there are very high margins in Medicare,” Pattillo says. “They believe there’s a 17% margin on Medicare claims.”
Pattillo notes that CMS’s response to last year’s provider comment letters was that: “In a 17%-margin environment, we just don’t understand how a 1% to 2% decrease can impact anything materially. Taking 1% to 2% of that 17% margin does not make sense to us that it would destabilize the industry.”
But CMS’ view that providers see a 17% margin on Medicare claims does not account for multiple important factors, including:
- Wage increases and the inflationary environment
- The high number of Medicare Advantage patients that providers care for
- The high number of MA plans with reimbursement rates under the cost of care
Those last two are the big ones. Providers may have a 17% margin if they only took Medicare patients, but when half of their patients are under MA plans, their margins come out to more like 1-5%. In short, home health agency margins are much slimmer than CMS implies.
“The individual elements of cost of care are absolutely not going down,” Pattillo says. “There is nothing that has gotten cheaper about caring for patients, and we know the acuity of those patients is rising in terms of the way that they’re coming into your home health agencies.”
Adjusting to the new rule starts with turning to HCHB
When a new rule proposal is released, care providers turn to the HCHB Analytics Impact Model to review the rule’s potential impact and figure out what changes they need to make.
“The first thing that we do after the proposed rule is released is look to the Homecare Homebase model,” Gochnour says. “We then work from that to refine and understand, because we operate in 14 states across the country, so we have a lot of variability in how a proposed rule is going to impact each individual operation.”
The HCHB dashboard allows companies to see where they fit in the new rule. Benefits include insight into:
- The variability in CMS’s methodology
- How that variability your branches in different states
- How your agency will be affected by case mix changes
- The potential effect you will see to your revenue
- The ability to understand when and how to add new service lines
“We use this model to really estimate that impact and immediately provide our local operators with some insight into what the impact is going to be for them, so that they can begin honing in on what changes they may need to make,” Gochnour says.
This article is based on a recent HHCN-HCHB webinar featuring Scott Pattillo and John Gochnour. HCHB delivers powerful new tools and intuitive software that’s easy to learn and use. From scheduling, routing, documentation and reporting to intake, billing, and compliance we give you everything you need to boost productivity and profits while empowering exceptional patient care. To learn more, visit hchb.com.
