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Rule2025-21767

Medicare and Medicaid Programs; Calendar Year 2026 Home Health Prospective Payment System (HH PPS) Rate Update; Requirements for the HH Quality Reporting Program and the HH Value-Based Purchasing Expanded Model; Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program Updates; DMEPOS Accreditation Requirements; Provider Enrollment; and Other Medicare and Medicaid Policies

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Published

December 2, 2025

Effective

January 1, 2026

Issuing agencies

Health and Human Services DepartmentCenters for Medicare & Medicaid Services

Abstract

This final rule sets forth routine updates to the Medicare home health payment rates in accordance with existing statutory and regulatory requirements. In addition, this final rule finalizes permanent and temporary behavior adjustments and recalibrates the case- mix weights and update the functional impairment levels; comorbidity subgroups; and low-utilization payment adjustment (LUPA) thresholds for CY 2026. This final rule also finalizes changes to the face-to-face encounter policy and changes to the Home Health Quality Reporting Program (HH QRP) and the expanded Health Value-Based Purchasing (HHVBP) Model requirements. In addition, it updates the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program (CBP). Lastly it finalizes: a technical change to the HH conditions of participation; updates to DMEPOS supplier conditions of payment; updates to provider and supplier enrollment requirements; and changes to DMEPOS accreditation requirements.

Full Text

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[Federal Register Volume 90, Number 229 (Tuesday, December 2, 2025)]
[Rules and Regulations]
[Pages 55342-55620]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-21767]

[[Page 55341]]

Vol. 90

Tuesday,

No. 229

December 2, 2025

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 405, 414, 424 et al.

Medicare and Medicaid Programs; Calendar Year 2026 Home Health
Prospective Payment System (HH PPS) Rate Update; Requirements for the
HH Quality Reporting Program and the HH Value-Based Purchasing Expanded
Model; Durable Medical Equipment, Prosthetics, Orthotics, and Supplies
(DMEPOS) Competitive Bidding Program Updates; DMEPOS Accreditation
Requirements; Provider Enrollment; and Other Medicare and Medicaid
Policies; Final Rule

Federal Register / Vol. 90 , No. 229 / Tuesday, December 2, 2025 /
Rules and Regulations

[[Page 55342]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 414, 424, 455, 484, and 498

[CMS-1828-F]
RIN 0938-AV53

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).

ACTION: Final rule.

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SUMMARY: This final rule sets forth routine updates to the Medicare
home health payment rates in accordance with existing statutory and
regulatory requirements. In addition, this final rule finalizes
permanent and temporary behavior adjustments and recalibrates the case-
mix weights and update the functional impairment levels; comorbidity
subgroups; and low-utilization payment adjustment (LUPA) thresholds for
CY 2026. This final rule also finalizes changes to the face-to-face
encounter policy and changes to the Home Health Quality Reporting
Program (HH QRP) and the expanded Health Value-Based Purchasing (HHVBP)
Model requirements. In addition, it updates the Durable Medical
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive
Bidding Program (CBP). Lastly it finalizes: a technical change to the
HH conditions of participation; updates to DMEPOS supplier conditions
of payment; updates to provider and supplier enrollment requirements;
and changes to DMEPOS accreditation requirements.

DATES: These regulations are effective on January 1, 2026.

FOR FURTHER INFORMATION CONTACT: For general information about the Home
Health Prospective Payment System (HH PPS), send your inquiry via email
to <a href="/cdn-cgi/l/email-protection#2f6740424a674a4e435b477f4043464c566f4c425c0147475c01484059">[email&#160;protected]</a>.
For information about the Home Health Quality Reporting Program
(HH QRP), send your inquiry via email to <a href="/cdn-cgi/l/email-protection#6028283132301115051314090f0e1320030d134e0808134e070f16">[email&#160;protected]</a>.
For more information about the expanded Home Health Value-Based
Purchasing Model (HHVBP), please visit the Expanded HHVBP Model web
page at <a href="https://www.cms.gov/priorities/innovation/innovation-models/expanded-home-health-value-based-purchasing-model">https://www.cms.gov/priorities/innovation/innovation-models/expanded-home-health-value-based-purchasing-model</a> or send your inquiry
via email to <a href="/cdn-cgi/l/email-protection#266e6e70647657534355524f49485566454b55084e4e5508414950">[email&#160;protected]</a>.
Frank Whelan (410) 786-1302, for Medicare provider and supplier
enrollment and DMEPOS accreditation inquiries.
Katie Parker (410) 786-0537, Emily Calvert (410) 786-4277, or
Jessica Martindale (410) 786-1558 for DMEPOS Prior Authorization
inquiries.
Alexander Ullman at (410) 786-9671 or <a href="/cdn-cgi/l/email-protection#1e5a535b4e514d5e7d736d3076766d30797168">[email&#160;protected]</a>, for
DMEPOS Competitive Bidding Program inquiries.
For information about the Home Health Conditions of Participation,
send your inquiry via email to <a href="/cdn-cgi/l/email-protection#4c24292d2038242d22283f2d2a29383525223d39253e25293f0c2f213f6224243f622b233a">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive Summary
A. Purpose and Legal Authority
B. Summary of the Provisions of This Final Rule
C Summary of the Regulatory Impact Analysis
II. Home Health Prospective Payment System
A. Overview of the Home Health Prospective Payment System
B. Monitoring the Effects of the Implementation of the PDGM
C. Final CY 2026 Payment Adjustments Under the HH PPS
D. Final CY 2026 Home Health Low Utilization Payment Adjustment
(LUPA) Thresholds, Functional Impairment Levels, Comorbidity Sub-
Groups, and Case-Mix Weights
E. Final CY 2026 Home Health Payment Rate Updates
F. Final Regulation Change to Face-to-Face Encounter
III. Home Health Quality Reporting Program (HH QRP)
A. Background and Statutory Authority
B. Summary of the Provisions
C. Quality Measures Currently Adopted for the CY 2026 HH QRP
D. Removal of the COVID-19 Vaccine: Percent of Patients/
Residents Who Are Up to Date (Patient/Resident COVID-19 Vaccine)
Measure Beginning With the CY 2026 HH QRP
E. Removal of Four Standardized Patient Assessment Data
Elements Beginning With the CY 2026 HH QRP
F. Amending the Data Non-Compliance Reconsideration Request
Policy and Process Beginning With the CY 2026 HH QRP
G. Updates to Requirements for OASIS All-Payer Data Submission
H. HHCAHPS Survey Updates
I. HH QRP Quality Measure Concepts Under Consideration for
Future Years--Request for Information
J. Potential Revision of the Final Data Submission Deadline
Period From 4.5 Months to 45 Days--Request for Information (RFI)
K. Advancing Digital Quality Measurement in the HH QRP--Request
for Information
L. Form, Manner, and Timing of Data Submission Under the HH QRP
M. Policies Regarding Public Display of Measure Data for the HH
QRP
IV. The Expanded Home Health Value-Based Purchasing (HHVBP) Model
A. Background
B. Finalized Changes to HHVBP Measure Removal Factors
C. Finalized Changes to the Expanded HHVBP Model's Applicable
Measure Set
D. HHVBP Quality Measure Concepts Under Consideration for Future
Years--Request for Information
V. Updates to the Home Health Agency Conditions of Participation
(CoPs) To Align With the OASIS All-Payer Submission Requirements
A. Statutory Authority and Background
B. Updates to the Home Health Agency CoPs To Align With the
OASIS All-Payer Submission Requirements (Sec. Sec. 484.45(a) and
484.55(d)(1)(i))
VI. Provider Enrollment, Certain Durable Medical Equipment,
Prosthetics, Orthotics, and Supplies (DMEPOS) Accreditation
Policies, and DMEPOS Prior Authorization
A. Provider Enrollment
B. DMEPOS Supplier Accreditation Process
C. Finalized Exemption Process for Prior Authorization of
Certain DMEPOS Items (Sec. 414.234(c)(1) and (c)(1)(ii))
VII. DMEPOS Competitive Bidding Program
A. Background
B. Determining Payment Amounts and the Number of Contracts
Awarded for the DMEPOS CBP
C. Adjustments to SPAs
D. Bid Limits and Conditions for Awarding Contracts if Savings
Are Not Expected
E. Revising the Definition of Item Related to Medical Supplies
F. Remote Item Delivery (RID) CBP
G. Payment for Continuous Glucose Monitors and Insulin Infusion
Pumps
H. Revising the Submission of Financial Document Requirements
for the DMEPOS CBP
I. Revising the CDRD Evaluation and Notification Process for the
DMEPOS CBP
J. Bid Surety Bond Review Process
K. Tribal Exemption From Participating in the DMEPOS CBP
L. Addition of a Termination Clause for the Durable Medical
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive
Bidding Program (CBP) Supplier Contracts
M. Technical Change to Sec. 414.408(h)(8)
N. Definitions of Competition and Adjusted and Unadjusted Fee
Schedule Amounts Under Sec. 414.402
VIII. Collection of Information Requirements
A. Statutory Requirement for Solicitation of Comments

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B. Information Collection Requirements (ICRs)
IX. Regulatory Impact Analysis
A. Statement of Need
B. Overall Impact
C. Detailed Economic Analysis
D. Regulatory Review Cost Estimation
E. Alternatives Considered
F. Accounting Statements and Tables
G. Regulatory Flexibility Act (RFA)
H. Unfunded Mandates Reform Act (UMRA)
I. Federalism
J. Unleashing Prosperity Through Deregulation
K. Conclusion
X. Response to Comments

I. Executive Summary

A. Purpose and Legal Authority

1. Home Health Prospective Payment System (HH PPS)
As required under section 1895(b) of the Social Security Act (the
Act), this final rule updates the CY 2026 Medicare payment rates for
home health agencies (HHAs). In this final rule, we also finalize
permanent and temporary adjustments to the CY 2026 home health base
payment rate to account for the difference between assumed versus
actual behavior changes on estimated aggregate expenditures for home
health payments as a result of the change in the unit of payment to 30
days and the implementation of the Patient Driven Groupings Model
(PDGM). In addition, this rule finalizes the recalibrated PDGM case-mix
weights and updates the low-utilization payment adjustment (LUPA)
thresholds, functional impairment levels, and comorbidity adjustment
subgroups under sections 1895(b)(4) of the Act for 30-day periods of
care in CY 2026. This rule finalizes an update to the CY 2026 fixed-
dollar loss (FDL) ratio for outlier payments (so that outlier payments
as a percentage of estimated total payments are projected not to exceed
2.5 percent, as required by section 1895(b)(5)(A) of the Act).
Additionally, this rule finalizes changes to the face-to-face encounter
policy at 42 CFR 424.22(a)(1)(v) to align with section 3708 of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
2. Home Health (HH) Quality Reporting Program (QRP)
In accordance with the statutory authority at section
1895(b)(3)(B)(v) of the Act, we are finalizing updated quality
reporting policies. We are finalizing the proposal to remove the COVID-
19 Vaccine: Percent of Patients Who Are Up to Date measure and the item
related to the measure and corresponding data element beginning with
the CY 2026 HH QRP. CMS is also finalizing the proposal to remove four
assessment items: one Living Situation item, two Food items, and one
Utilities item beginning with the CY 2026 HH QRP. We are also
finalizing the proposal to revise the policy to allow for providers to
submit a request for reconsideration of an initial determination of
noncompliance if they can demonstrate full compliance. In very limited
circumstances, HHAs will be permitted to request an extension to file a
reconsideration request if the HHA was affected by an extraordinary
circumstance beyond the control of the HHA (that is, a natural or man-
made disaster such as a cyber-attack, hurricane, tornado, or
earthquake) during the 30-day reconsideration period. CMS is also
finalizing a revised Home Health Consumer Assessment of Healthcare
Providers and Systems (HHCAHPS) Survey beginning with the April 2026
sample month. This rule also updates regulatory text to account for
all-payer data submission of OASIS data. In a request for information
(RFI) included in the CY 2026 HH PPS proposed rule, we sought
information on a change to the final data submission deadline period
from 4.5 months to 45 days. We also sought feedback on the digital
quality measurement (dQM) transition for HHAs. We solicited feedback
from the public on the current adoption of health information
technology (IT) and standards including Fast Healthcare
Interoperability Resources (FHIR), including related challenges or
barriers HHAs are facing. Finally, we sought input on future HH QRP
quality measure (QM) concepts of interoperability, cognitive function,
nutrition, and patient well-being. A summary of the comments submitted
in response to these RFIs is included in this final rule.
3. Expanded Home Health Value-Based Purchasing (HHVBP) Model
In accordance with the statutory authority at section 1115A of the
Act, we are finalizing our proposals to do the following for the
expanded HHVBP Model: (1) add a new measure removal factor for the
expanded HHVBP Model applicable measure set and (2) make changes to the
expanded HHVBP Model applicable measure set. Additionally, we included
in the proposed rule a request for information (RFI) related to
potential future performance measure concepts and we summarize comments
received in response to this RFI in this final rule.
We proposed to add a new measure removal factor for the expanded
HHVBP Model applicable measure set for measures that are not feasible
to implement. We proposed to remove three HHCAHPS Survey-based
measures, to align with proposed changes to the HHCAHPS survey. We
proposed the addition of four new measures. These additions include the
claims-based Medicare Spending Per Beneficiary Post-Acute Care (MSPB-
PAC) measure, and three OASIS-based function measures: Improvement in
Bathing, Improvement in Upper Body Dressing, and Improvement in Lower
Body Dressing. Due to these proposed changes to the applicable measure
set, we also proposed revising the weights of the individual HHVBP
measures as well as the measure categories. As noted above, we are
finalizing these proposals without modification.
4. Updates to the Home Health Agency CoPs To Align With the OASIS All-
Payer Submission Requirements
We are finalizing the technical regulation text changes to the
Home Health Conditions of Participation (CoP). These technical changes
update terminology in the Home Health CoPs to further clarify that the
requirement for reporting OASIS information applies to all HHA patients
receiving skilled services.
5. Medicare and Medicaid Provider Enrollment
Consistent with section 1866(j) of the Act, we proposed and are
finalizing several Medicare provider enrollment provisions to
strengthen and clarify certain aspects of the provider enrollment
process. These include but are not limited to: (1) modifying grounds
for denying, revoking, or deactivating a provider's or supplier's
Medicare enrollment; and (2) expanding the reasons for which CMS can
apply a retroactive effective date for provider and supplier
revocations. These changes are necessary to help ensure that payments
are made only to qualified providers and suppliers, which we believe
would assist in protecting the Trust Funds and Medicare beneficiaries.
We are also finalizing a technical correction to one of our
Medicaid provider enrollment provisions in 42 CFR 455.416 to further
clarify the scope of Sec. 455.416(c).
6. DMEPOS Supplier Accreditation Organizations
Consistent with provisions in section 1834(a)(20) of the Act, we
proposed and are finalizing revisions and additions to a number of our
regulations regarding DMEPOS supplier accreditation and, in particular,
requirements that an organization must meet to become and remain a CMS-
approved DMEPOS accrediting organization (AO). Our

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finalized provisions include but are not limited to: (1) requiring
DMEPOS suppliers to be surveyed and reaccredited every year (as opposed
to the current 3-year cycle); (2) eliminating inconsistencies among AOs
in how they oversee DMEPOS suppliers; and (3) strengthening our ability
to take action against poorly performing DMEPOS AOs. We believe these
changes will help ensure that DMEPOS AOs closely oversee DMEPOS
suppliers for compliance with the DMEPOS quality standards.
7. DMEPOS Prior Authorization
In section V.C. of this final rule, we are finalizing regulations
regarding granting and withdrawing exemptions from mandatory prior
authorization requirements for certain DMEPOS suppliers.
8. DMEPOS Competitive Bidding Program
We are finalizing the proposed changes to regulations at subpart C
of 42 CFR 414 we believe are necessary for the effective implementation
of the DMEPOS Competitive Bidding Program (CBP) mandated by section
1847(a) of the Act.
a. Determining Payment Amounts and the Number of Contracts Awarded for
the DMEPOS CBP
We are finalizing the provisions for how single payment amounts
(SPAs) are calculated and how CMS determines the number of contracts to
award in each ``competition,'' which refers to the CBPs competitive
bidding area (CBA) and product category combination.
b. Adjustments to SPAs
We are finalizing the regulation to acknowledge the challenge and
uncertainty a bidder may face when factoring inflation into its bid. We
believe that adding an annual increase to the SPAs to account for
inflation will be consistent with Medicare making annual covered item
updates for other DMEPOS items and services. This will account for
inflation in the cost of doing business for suppliers submitting bids
for furnishing items under a multi-year contract.
c. Bid Limits and Conditions for Awarding Contracts if Savings Are Not
Expected
We are finalizing the regulation to revise the methodology used to
establish bid limits and establish the conditions for determining when
contracts cannot be awarded in accordance with section 1847
(b)(2)(A)(iii) of the Act because the total amounts to be paid to
contract suppliers in a CBA are expected to be less than the total
amounts that would otherwise be paid. These changes will better ensure
DMEPOS CBP is responsive to rising costs over time while still ensuring
alignment with the statutory requirement for achieving savings.
d. Revising the Definition of ``Item'' Related to Medical Supplies
This final rule specifies that ostomy, tracheostomy, and
urological supplies are medical equipment items mandated for inclusion
under the DMEPOS CBP by section 1847(a)(2)(A) of the Act.
e. Remote Item Delivery (RID) CBP
This final rule creates two new definitions under Sec. 414.402
for ``Remote item delivery CBP'' and ``Remote item delivery item'' for
the purpose of establishing one or more RID CBPs wherein contract
suppliers would be responsible for furnishing the items and services
under the product category primarily on a mail order basis to all
Medicare beneficiaries regardless of where they live in the CBA, but
could also furnish the items on a non-mail order basis. Any
competitively bid item furnished on a non-mail order basis would also
need to be furnished by a contract supplier. For a given product
category, we could implement one nationwide RID CBP that would include
all areas (all States, territories, and the District of Columbia) or we
could implement multiple RID CBPs covering different regions of the
country. Items included in a nationwide or regional RID CBP will be
those that are typically furnished to beneficiaries from remote
supplier locations that are hundreds of miles on average from the
beneficiary residence where the items are delivered.
f. Payment for Continuous Glucose Monitors and Insulin Infusion Pumps
The final rule will make payment under the DMEPOS CBP for certain
continuous glucose monitors and insulin infusion pumps and all
necessary supplies and accessories on a bundled monthly rental basis.
The technology of products used by beneficiaries to help manage
diabetes continues to change rapidly, and without frequent and
substantial servicing to ensure that the devices continue to function
correctly, the beneficiary might not receive information they need to
make correct diabetes treatment decisions or the dosage of insulin
administered by the insulin pump could be incorrect, putting the
beneficiary in imminent danger. This final rule will eliminate the need
to wait 5 years to replace equipment, allowing beneficiaries to use the
latest technologically updated items. Payment for continuous glucose
monitors and insulin infusion pumps and all necessary supplies and
accessories that are not furnished under the DMEPOS CBP would also be
made on a bundled monthly rental basis in the same amounts established
for continuous glucose monitors and insulin infusion pumps under the
DMEPOS CBP.
g. Revising the Submission of Financial Documents for the DMEPOS CBP
The final rule streamlines the requirements and evaluation of the
DMEPOS CBP financial standards, while still ensuring that suppliers
that are offered contracts are financially stable enough to participate
in the Medicare DMEPOS CBP for the duration of the contract performance
period.
h. Revising the Covered Document Review Date Evaluation and
Notification Process for the DMEPOS CBP
The final rule streamlines the process for evaluating and
notifying a bidder who submitted a covered document by the covered
document review date if a covered document(s) is missing.
i. Bid Surety Bond Review Process
The final rule codifies the bid surety bond rider process that
occurred during the DMEPOS CBP round in 2021 and to correct a
regulatory citation error from previous rulemaking.
j. Tribal Exemption From Participating in the DMEPOS CBP
The final rule adds a Tribal exception to the DMEPOS CBP
regulations.
k. Addition of a Termination Clause for the DMEPOS CBP Supplier
Contracts
The final rule adds a termination clause to the DMEPOS CBP
contracts that could be utilized during a public health emergency
(PHE), when CMS determines that credible evidence exists of an access
problem for beneficiaries, and when CMS believes the termination of an
entire DMEPOS CBP contract, the termination of a competition on a
DMEPOS CBP contract, or the termination of a defined area(s) within a
CBA could improve the situation for the applicable competition(s) or
defined areas (for example, ZIP codes) within a CBA.
l. Technical Change to Sec. 414.408(h)(8)
The final rule makes a technical change to Sec. 414.408(h)(8) so
that it correctly refers to paragraph (h)(8)(ii) instead of paragraph
(h)(7)(ii).

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m. Adding Definitions of Adjusted Fee Schedule, Amount Competition, and
Unadjusted Fee Schedule Amount to Sec. 414.402.
The final rule adds definitions of ``Adjusted fee schedule
amount,'' ``Competition,'' and ``Unadjusted fee schedule amount'' to
Sec. 414.402 for the purpose of simplifying the regulation text for
subpart F.

B. Summary of the Provisions of This Final Rule

1. Home Health Prospective Payment System (HH PPS)
In section II.B.1. of this final rule, we discuss comments related
to the monitoring and data analysis on the PDGM utilization.
In section II.C.1. of this final rule, we finalized a -1.023
percent permanent adjustment and a -3.0 percent temporary adjustment to
the base payment rate under the HH PPS.
In section II.D. of this final rule, we finalized the recalibrated
CY 2026 PDGM case-mix weights and updates to the low-utilization
payment adjustment (LUPA) thresholds, functional impairment levels, and
comorbidity adjustment subgroups.
In section II.E. of this final rule, we update the home health
wage index. We also update the CY 2026 national, standardized 30-day
period payment rates and the CY 2026 national per-visit payment amounts
by the home health payment update percentage. The final home health
payment update percentage for CY 2026 is 2.4 percent. Additionally,
this rule finalizes the CY 2026 fixed dollar loss (FDL) ratio to ensure
that aggregate outlier payments are projected not to exceed 2.5 percent
of the total aggregate payments, as required by section 1895(b)(5)(A)
of the Act.
In section II.F. of this final rule, we finalized changes to the
face-to-face encounter policy at 42 CFR 424.22(a)(1)(v).
2. Home Health Quality Reporting Program (HH QRP)
In section III. of this final rule, we are finalizing the proposal
to remove the COVID-19 Vaccine: Percent of Patients Who Are Up to Date
measure and the item related to the measure. We are also finalizing the
proposal to remove four assessment items: one Living Situation item,
two Food items, and one Utilities item. CMS is finalizing the proposal
to implement a revised HHCAHPS Survey beginning with the April 2026
sample month. We are finalizing the proposal to revise the policy to
allow providers to submit a request for reconsideration of an initial
determination of non-compliance with the HH QRP data submission
requirements. They can request this if they believe that they can
demonstrate full compliance. We also are finalizing that, in very
limited circumstances, the HHA could request an extension to file a
reconsideration request if the HHA was affected by an extraordinary
circumstance beyond the control of the HHA, (that is, a natural
disaster or man-made disaster such as a cyber-attack, hurricane,
tornado, or earthquake) during the 30-day period for requesting
reconsideration of the initial determination.
We summarize input received on a series of RFIs. In the CY 2026 HH
PPS proposed rule, we sought information on a change to the final data
submission deadline period from 4.5 months to 45 days. We also sought
feedback on the digital quality measurement (dQM) transition for HHAs.
We solicited feedback from the public on current adoption of health IT
and standards, including Fast Healthcare Interoperability Resources
(FHIR), and what related challenges or barriers HHAs are facing.
Finally, we sought input on future HH QRP quality measure (QM) concepts
of interoperability, cognitive function, nutrition, and patient well-
being.
3. Expanded Home Health Value Based Purchasing (HHVBP) Model
In section IV. of this final rule, we finalize a proposal to add a
new measure removal factor for the expanded HHVBP Model applicable
measure set. This ninth measure removal factor will allow CMS to
propose the removal of a measure when it is no longer feasible to
implement the measure specifications. We also finalize proposed changes
to the expanded HHVBP Model applicable measure set and changes to
measure weights. We are removing three HHCAHPS Survey-based measures to
align with finalized changes to the HHCAHPS Survey. We also finalize
the proposed addition of four new measures. These additions include the
claims-based Medicare Spending Per Beneficiary Post-Acute Care (MSPB-
PAC) measure, and three OASIS-based function measures: Improvement in
Bathing, Improvement in Upper Body Dressing, and Improvement in Lower
Body Dressing. Due to these changes to the applicable measure set, we
also finalize proposed revisions to the weights of the individual HHVBP
measures and the measure categories.
We also summarize public comments received in response to an RFI
included in the proposed rule related to potential future measure
concepts for the expanded HHVBP Model.
4. Updates to the Home Health Agency Conditions of Participation (CoPs)
To Align With the OASIS All-Payer Submission Requirements
In section V. of this rule, we finalized technical regulation text
changes to Sec. 484.45 and Sec. 484.55 of the Home Health Conditions
of Participation (CoPs) to align with the OASIS all-payer submission
requirements. These technical changes update terminology in the Home
Health CoPs to further clarify that the requirement for reporting OASIS
information applies to all HHA patients receiving skilled services.
5. Medicare and Medicaid Provider Enrollment
We finalized several Medicare provider enrollment provisions to
strengthen and clarify certain aspects of the provider enrollment
process. These include, but are not limited to, the following:
<bullet> Modifying grounds for denying, revoking, or deactivating a
provider's or supplier's Medicare enrollment.
<bullet> Expanding the reasons for which CMS can apply a
retroactive effective date for provider and supplier revocations.
<bullet> Expanding the reasons for which CMS can apply a stay of
enrollment.
<bullet> Requiring providers and suppliers to report any adverse
legal actions imposed against them, their owners, their managers, etc.
within 30 days instead of the current 90 days.
We believe these revisions would help keep unqualified providers
and suppliers out of the Medicare program, which, in turn would prevent
improper Medicare payments to such parties.
6. DMEPOS Supplier Accreditation Organizations
DMEPOS suppliers are required to be accredited by a CMS-approved
accrediting organization to enroll in and bill Medicare. The purpose of
accreditation is to confirm, typically through an on-site survey of the
supplier, that the supplier meets the DMEPOS quality standards.
Regulations promulgating our accreditation requirements were enacted in
2006 but have not been updated since then. We are concerned there may
be instances where: (1) AOs are accrediting DMEPOS suppliers that do
not meet the quality standards; and (2) DMEPOS suppliers are falling
out of compliance with the quality standards (sometimes for extended
periods) after becoming accredited. To enhance our ability to ensure
that AOs are performing DMEPOS accreditation functions effectively and
thoroughly, including

[[Page 55346]]

verifying suppliers' compliance with the quality standards, we are
finalizing proposals that add a number of provisions to our DMEPOS
accreditation regulations. Among our finalized provisions are as
follows:
<bullet> Requiring DMEPOS suppliers to be surveyed and reaccredited
every year (as opposed to the current 3-year cycle).
<bullet> Reducing inconsistencies among AOs in how they oversee
DMEPOS suppliers.
<bullet> Requiring AOs to furnish more detailed information to CMS
when applying or reapplying for approval to become or remain a DMEPOS
AO.
<bullet> Facilitating greater CMS oversight of the DMEPOS AOs.
We believe these and other changes to the DMEPOS accreditation
process would help ensure that unqualified DMEPOS suppliers are not
accredited and do not, in turn, receive Medicare payments.
7. DMEPOS Prior Authorization
In section V.C. of this final rule, we are finalizing regulations
regarding granting and withdrawing exemptions from mandatory prior
authorization requirements for certain DMEPOS suppliers.
8. DMEPOS Competitive Bidding
a. Determining Payment Amounts and the Number of Contracts Awarded for
the DMEPOS CBP
Currently SPAs for the lead item (defined under Sec. 414.402 as
the item in the product category with the highest total allowed charges
nationwide) are calculated using the maximum winning bid submitted by
bidders whose composite bids for the product category that includes the
lead item are equal to or below the pivotal bid for that product
category. In the final rule, we are revising this calculation to use
the 75th percentile of winning bids for the lead item by bidders whose
composite bids for the product category that includes the lead item are
equal to or below the pivotal bid for that product category. We are
also finalizing our proposal to change the way the SPAs are calculated
for the non-lead items in a product category in certain CBAs.
Currently, the ratio multiplied by the SPA for the lead item to
calculate the SPA for the non-lead item is based on the average of the
2015 fee schedule amounts for all areas (that is, all states, the
District of Columbia, Puerto Rico, and the United States Virgin
Islands) for the non-lead item divided by the average of the 2015 fee
schedule amounts for all areas for the lead item. This formula uses
average fee schedule amounts rather than fee schedule amounts for
specific areas, which results in cases where the SPA for a non-lead
item can be higher than the fee schedule amount that would otherwise be
paid. To address this situation in CBAs other than remote item delivery
CBAs, we are finalizing our proposal to calculate the ratio based on
the 2015 fee schedule amounts for each specific area rather than the
average of the 2015 fee schedule amounts for all areas. Additionally,
the final rule would revise how CMS determines the number of DMEPOS CBP
contracts to award to DMEPOS suppliers by using contract supplier
utilization information from previous rounds of the DMEPOS CBP for
product categories previously included under the CBP as well as
information on current supplier utilization for new product categories.
b. Adjustments to SPAs
We are finalizing our proposal to apply an annual update factor to
SPAs, starting with year two of the DMEPOS CBP contracts.
c. Bid Limits and Conditions for Awarding Contracts if Savings Are Not
Expected
We are finalizing our proposal to amend 42 CFR 414.414(f) so
contracts could be awarded in a CBA if the amounts to be paid are no
greater than 110 percent of the amounts that would otherwise be paid
for the items. This rule clarifies that the amounts that would
otherwise be paid include payment amounts adjusted in accordance with
Sec. 414.210(g). This rule also finalizes our proposal to modify 42
CFR 414.412(b) to establish bid limits both for items included in the
CBP for the first time and for items that have previously been included
in the CBP. For items included in the CBP for the first time, the bid
limits would be the amounts otherwise paid for the items. For items
that have previously been included in the CBP, the bid limits would be
the most recent SPA for the items plus 10 percent, or if it has been
more than a year since the SPA was last in effect, the inflation-
adjusted SPA plus 10 percent. However, we are finalizing that in no
event would the bid limit be allowed to exceed the unadjusted fee
schedule amount. In addition, this rule finalizes a technical
correction to add reference to subpart Q (``Payment for Lymphedema
Compression Treatment Items'') to 42 CFR 414.414(f).
d. Payment for Continuous Glucose Monitors and Insulin Infusion Pumps
We are finalizing our proposal to make payment under the DMEPOS CBP
for certain continuous glucose monitors and insulin infusion pumps and
all necessary supplies and accessories on a bundled monthly rental
basis. We are finalizing our proposal that payment for continuous
glucose monitors and insulin infusion pumps and all necessary supplies
and accessories that are not furnished under the DMEPOS CBP would also
be made on a bundled monthly rental basis with payments limited to the
amounts established for continuous glucose monitors and insulin
infusion pumps under the DMEPOS CBP.
e. Revising the Definition of ``Item'' As Related to Medical Supplies
We are finalizing our proposal to revise the definition of ``item''
at Sec. 414.402 to clarify that section 1847(a)(2) of the Act includes
ostomy, tracheostomy, and urological supplies as ``items'' subject to
the DMEPOS CBP. We are finalizing our proposal that ``medical
supplies'' under this section is a category of items separate from
durable medical equipment that includes ostomy, tracheostomy, and
urological supplies.
f. Remote Item Delivery (RID) CBP
We are finalizing our proposal to create two new definitions under
Sec. 414.402 for the purpose of establishing a RID CBP(s) wherein
contract suppliers would be required to furnish the items primarily on
a mail order basis under the product category to all Medicare
beneficiaries regardless of where they live in the CBA. While we expect
that the majority of items would be furnished on a mail order basis, a
RID competition would not exclude items in the product category that
are furnished on a non-mail order basis. Items included in a RID CBP
would be those that are typically furnished to beneficiaries from
remote supplier locations that are hundreds of miles on average from
the beneficiary residence where the items are delivered.
g. Revising the Submission of Financial Document Requirements for the
DMEPOS CBP
We are finalizing our proposal to no longer require the submission
of a tax return extract, income statement, balance sheet, or statement
of cash flows for the purpose of implementing the financial standards
mandated by section 1847(b)(2)(A)(ii) of the Act. This final rule will
reduce the burden on suppliers submitting bids under the DMEPOS

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CBP. However, we are finalizing our proposal to continue requiring
suppliers to submit a credit report with a numerical credit score and/
or rating from one of the four approved credit reporting agencies
during the bid window, and by the CDRD if the supplier wants to be
eligible for the process for reviewing covered documents. Additionally,
we are finalizing our proposal to continue using a five-tier scoring
system in the evaluation of the credit report with a numerical credit
score and/or rating, which will be utilized to establish a financial
score that will indicate if a supplier is financially stable enough to
participate in the Medicare DMEPOS CBP for the duration of the contract
performance period. We are also finalizing our proposal to no longer
use a supplier's financial score to assist in determining the capacity
to assign to each supplier to meet projected beneficiary demand.
Furthermore, we are finalizing our proposal to have suppliers attest to
the fact that they meet the small supplier threshold in the DMEPOS
Bidding System (DBidS), or any successor system, if applicable.
h. Revising the CDRD Evaluation and Notification Process for the DMEPOS
CBP
Since the inception of the DMEPOS CBP, when a bidder has submitted
at least one covered document by the CDRD, CMS has notified the bidder
within 90 days after the CDRD if they were missing a covered document
by the close of the bid window or if a covered document was missing by
the CDRD. We are finalizing our proposal that when a bidder has
submitted at least one covered document by the CDRD, CMS will notify
the bidder within 90 days after the CDRD if they have any missing
covered document(s) by the close of the bid window. The supplier will
have 10 days after such notification to provide the missing covered
document(s).
i. Bid Surety Bond Review Process
CMS applied a bid surety bond rider process during bid evaluation
for the DMEPOS CBP round in 2021, and we are finalizing our proposal to
codify this process in regulation for all future rounds. Additionally,
we are finalizing our proposal to correct a technical error in 42 CFR
414.412(g) that happened as a result of a paragraph redesignation in 83
FR 57072.
j. Tribal Exemption From Participating in the DMEPOS CBP
We are finalizing our proposal to add an exception to the DMEPOS
CBP that will allow Medicare payment to Indian Health Service (IHS) and
tribally operated facilities and suppliers as noncontract suppliers to
furnish competitively bid items and services to American Indian/Alaska
Native (AI/AN) Medicare beneficiaries who reside in a CBA during a
round of the DMEPOS CBP.
k. Addition of a Termination Clause for the DMEPOS CBP Supplier
Contracts
We are finalizing the proposed changes in Sec. 414.422 to have the
option to unilaterally terminate or modify each applicable DMEPOS CBP
supplier contract to allow any Medicare enrolled DMEPOS supplier to
furnish the applicable items and services to Medicare beneficiaries if
CMS determines that due to a PHE, contract suppliers are unable to
furnish certain items and services to beneficiaries in certain areas
impacted by a PHE (PHE-impacted area) as required under their
respective DMEPOS CBP supplier contracts.
CMS is finalizing the rule in Sec. 414.422 to have the option to
remove items and services furnished in a PHE-impacted areas from the
DMEPOS CBP when all of the following qualifying criteria are met: (1)
the Secretary declares a PHE; (2) CMS determines that verifiable
evidence exists of a DMEPOS access problem for beneficiaries for a
certain competition or defined area(s) within the competition's CBA;
(3) CMS determines that awarding additional DMEPOS CBP supplier
contracts, per Sec. 414.414(i), will not address the access concerns;
and (4) CMS determines terminating or modifying each impacted DMEPOS
CBP supplier contract to exclude certain competition(s) or defined
area(s) within the competition's CBA from the DMEPOS CBP would
alleviate access concerns.
After termination and/or modification of all applicable DMEPOS CBP
supplier contracts, CMS is finalizing the proposed changes in Sec.
414.422 to revert back to the general fee-for-service program
requirements set forth in 42 CFR part 414 Subpart D for the applicable
competition(s) or defined area(s) within a CBA.
l. Technical Change to Sec. 414.408(h)(8)
We are finalizing our proposal to make a technical change to Sec.
414.408(h)(8) so that it correctly refers to paragraph (h)(8)(ii)
instead of paragraph (h)(7)(ii).
m. Adding Definitions of Adjusted Fee Schedule Amount, Competition, and
Unadjusted Fee Schedule Amount to Sec. 414.402
This final rule adds definitions of ``Adjusted fee schedule
amount,'' ``Competition,'' and ``Unadjusted fee schedule amount'' to
Sec. 414.402 for the purpose of simplifying the regulation text for
subpart F.

C. Summary of the Regulatory Impact Analysis

BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

II. Home Health Prospective Payment System

A. Overview of the Home Health Prospective Payment System

1. Statutory Background
Section 1895(b)(1) of the Act requires the Secretary to establish a
Home Health Prospective Payment System (HH PPS) for all costs of home
health services paid under Medicare. Section 1895(b)(2)(A) of the Act
requires that, in defining a prospective payment amount, the Secretary
shall consider an appropriate unit of service and the number, type, and
duration of visits provided within that unit, potential changes in the
mix of services provided within that unit and their cost, and a general
system design that provides for continued access to quality services.
In accordance with the statute, as amended by the Balanced Budget Act
of 1997 (BBA) (Pub. L. 105-33), we issued a final rule which appeared
in the July 3, 2000, Federal Register (65 FR 41128) to implement the HH
PPS legislation.
Section 5201(c) of the Deficit Reduction Act of 2005 (DRA) (Pub. L.
109-171, enacted February 8, 2006) added new section 1895(b)(3)(B)(v)
to the Act, requiring home health agencies (HHAs) to submit data for
purposes of measuring health care quality, and linking the quality data
submission to the annual applicable home health payment update
percentage increase. This data submission requirement is applicable for
CY 2007 and each subsequent year. Pursuant to section
1895(b)(3)(B)(v)(I) of the Act, if an HHA does not submit quality data,
the home health market basket percentage increase is reduced by 2
percentage points. In the November 9, 2006, Federal Register (71 FR
65935), we issued a final rule to implement the pay-for-reporting
requirement of the DRA, which was codified at Sec. 484.225(h) and (i)
in accordance with the statute. The pay-for-reporting requirement was
implemented on January 1, 2007.
Section 51001(a)(1)(B) of the Bipartisan Budget Act of 2018 (BBA of
2018) (Pub. L. 115-123) amended section 1895(b) of the Act to require a
change to the home health unit of payment to 30-day periods beginning
January 1, 2020. Section 51001(a)(2)(A) of the BBA of 2018 added a new
subclause (iv) under section 1895(b)(3)(A) of the Act, requiring the
Secretary to calculate a standard prospective payment amount (or
amounts) for 30-day units of service furnished that end during the 12-
month period beginning January 1, 2020, in a budget neutral manner,
such that estimated aggregate expenditures under the HH PPS during CY
2020 are equal to the estimated aggregate expenditures that otherwise
would have been made under the HH PPS during CY 2020 in the absence of
the change to a 30-day unit of service. Section 1895(b)(3)(A)(iv) of
the Act requires that the calculation of the standard prospective
payment amount (or amounts) for CY 2020 be made before the application
of the annual update to the standard prospective payment amount as
required by section 1895(b)(3)(B) of the Act.
Additionally, section 1895(b)(3)(A)(iv) of the Act requires that in
calculating the standard prospective payment amount (or amounts), the
Secretary must make assumptions about behavior changes that could occur
as a result of the implementation of the 30-day unit of service under
section 1895(b)(2)(B) of the Act and case-mix adjustment factors
established under section 1895(b)(4)(B) of the Act. Section
1895(b)(3)(A)(iv) of the Act further requires the Secretary to provide
a description of the behavior assumptions made in notice and comment
rulemaking. CMS finalized these behavior assumptions in the CY 2019 HH
PPS final rule with comment period (83 FR 56461).
Section 51001(a)(2)(B) of the BBA of 2018 also added a new
subparagraph (D) to section 1895(b)(3) of the Act. Section
1895(b)(3)(D)(i) of the Act requires the Secretary annually to
determine the impact of differences between assumed behavior changes,
as described in section 1895(b)(3)(A)(iv) of the Act, and actual
behavior changes on estimated aggregate expenditures under the HH PPS
with respect to years beginning with 2020 and ending with 2026. Section
1895(b)(3)(D)(ii) of the Act requires the Secretary, at a time and in a
manner determined appropriate, through notice and comment rulemaking,
to provide for one or more permanent increases or decreases to the
standard prospective payment amount (or amounts) for applicable years,
on a prospective basis, to offset for such increases or decreases in
estimated aggregate expenditures, as determined under section
1895(b)(3)(D)(i) of the Act. Additionally, section 1895(b)(3)(D)(iii)
of the Act requires the Secretary, at a time and in a manner determined
appropriate, through notice and comment rulemaking, to provide for one
or more temporary increases or decreases to the payment amount for a
unit of home health services for applicable years, on a prospective
basis, to offset for such increases or decreases in estimated aggregate
expenditures, as determined under section 1895(b)(3)(D)(i) of the Act.
Such a temporary increase or decrease shall apply only with respect to
the year for which such temporary increase or decrease is made, and the
Secretary shall not take into account such a temporary increase or
decrease in computing the payment amount for a unit of home health
services for a subsequent year. Finally, section 51001(a)(3) of the BBA
of 2018 amends section 1895(b)(4)(B) of the Act by adding a new clause
(ii) to require the Secretary to eliminate the use of therapy
thresholds in the case-mix system for CY 2020 and subsequent years.
Division FF, section 4136 of the Consolidated Appropriations Act,
2023 (CAA, 2023) (Pub. L. 117-328) amended section 1834(s)(3)(A) of the
Act to require that, beginning with 2024, the separate payment for
furnishing negative pressure wound therapy (NPWT) be for just the
device and not for nursing and therapy services. Payments for nursing
and therapy services are to be included as part of payments under the
HH PPS. The separate payment for 2024 was required to be equal to the
supply price used to determine the relative value for the service under
the Medicare Physician Fee Schedule (as of January 1, 2022) for the
applicable disposable device updated by the percentage increase in the
Consumer Price Index for All Urban Consumers (CPI-U). The separate
payment for 2025 and each subsequent year is to be the payment amount
for the previous year updated by the percentage increase in the CPI-U
(United States city average) for the 12-month period ending in June of
the previous year reduced by the productivity adjustment as described
in section 1886(b)(3)(B)(xi)(II) of the Act for such year. The CAA,
2023 also added section 1834(s)(4) of the Act to require that beginning
with 2024, as part of submitting claims for the separate payment, the
Secretary shall accept, and process claims submitted using the type of
bill that is most commonly used by HHAs to bill services under a home
health plan of care.
2. Current System for Payment of Home Health Services
For home health periods of care beginning on or after January 1,
2020, Medicare makes payment under the HH PPS on the basis of a
national, standardized 30-day period payment rate that is adjusted for
case-mix and area wage differences in accordance with section
51001(a)(1)(B) of the BBA of 2018. The national, standardized 30-day
period payment rate includes

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payment for the six home health disciplines (skilled nursing, home
health aide, physical therapy, speech-language pathology, occupational
therapy, and medical social services). Payment for non-routine supplies
(NRS) is also part of the national, standardized 30-day period rate.
Durable medical equipment (DME) provided as a home health service, as
defined in section 1861(m)(5) of the Act, is paid the fee schedule
amount or is paid through the competitive bidding program and such
payment is not included in the national, standardized 30-day period
payment amount. Additionally, the 30-day period payment rate does not
include payment for certain injectable osteoporosis drugs and
disposable negative pressure wound therapy (dNPWT) devices, but such
drugs and devices must be billed by the HHA while a patient is under a
home health plan of care, as the law requires separate consolidated
billing of certain osteoporosis drugs and dNPWT devices.
To better align payment with patient care needs and to better
ensure that clinically complex and ill beneficiaries have adequate
access to home health care, in the CY 2019 HH PPS final rule with
comment period (83 FR 56406), we finalized case-mix methodology
refinements, including the removal of therapy thresholds, through the
Patient-Driven Groupings Model (PDGM) for home health periods of care
beginning on or after January 1, 2020. The PDGM did not change
eligibility or coverage criteria for Medicare home health services, and
as long as the individual meets the criteria for home health services
as described at 42 CFR 409.42, the individual can receive Medicare home
health services, including therapy services. For more information about
the role of therapy services under the PDGM, we refer readers to the
Medicare Learning Network (MLN) Matters article SE20005 available at
<a href="https://www.cms.gov/regulations-and-guidanceguidancetransmittals2020-transmittals/se20005">https://www.cms.gov/regulations-and-guidanceguidancetransmittals2020-transmittals/se20005</a>. To adjust for case-mix for 30-day periods of care
beginning on and after January 1, 2020, the HH PPS uses a 432-category
case-mix classification system to assign patients to a home health
resource group (HHRG) using patient characteristics and other clinical
information from Medicare claims and the Outcome and Assessment
Information Set (OASIS) instrument. These 432 HHRGs represent the
different payment groups based on five main case-mix categories under
the PDGM, as shown in figure 1. Each HHRG has an associated case-mix
weight that is used in calculating the payment for a 30-day period of
care. For periods of care with visits less than the low-utilization
payment adjustment (LUPA) threshold for the HHRG, Medicare pays
national per-visit rates based on the discipline(s) providing the
services. Medicare also adjusts the national standardized 30-day period
payment rate for certain intervening events that are subject to a
partial payment adjustment. For certain cases that exceed a specific
cost threshold, an outlier adjustment may also be available.
Under this case-mix methodology, case-mix weights are generated for
each of the different PDGM payment groups by regressing resource use
for each of the five categories (admission source, timing, clinical
grouping, functional impairment level, and comorbidity adjustment)
using a fixed effects model. A detailed description of each of the
case-mix variables under the PDGM have been described previously, and
we refer readers to the CY 2021 HH PPS final rule (85 FR 70303 through
70305) for further information.

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B. Monitoring the Effects of the Implementation of the PDGM

1. Routine PDGM Monitoring
The CY 2026 HH PPS proposed rule (90 FR 29108) included analysis of
Medicare home health benefit utilization, including overall total 30-
day periods of care and average periods of care per HHA user;
distribution of the type of visits in a 30-day period of care; the
percentage of periods that receive the LUPA; estimated costs; the
percentage of 30-day periods of care by clinical group, comorbidity
adjustment, admission source, timing, and functional impairment level;
and the proportion of 30-day periods of care with and without any
therapy visits, nursing visits, and/or aide/social worker visits. We
also included monitoring of home health visits using telecommunications
technology and remote patient monitoring.
Comment: Commenters discussed the home health utilization trends
presented in the monitoring concurrently with comments regarding access
to the benefit and the majority of commenters stated the opinion, as
they have in prior years, that a decline in utilization is not
necessarily related to a reduced need for home health services.
Response: We will continue to monitor and analyze home health
utilization trends, potential access issues, and other vulnerabilities
within the home health payment system. We address and provide more
detailed responses regarding certain utilization trends, access
concerns, and reported potential vulnerabilities within the home health
payment system in the comment summaries in subsequent sections of this
rule.

C. CY 2026 Payment Adjustments Under the HH PPS

1. Behavior Adjustments Under the HH PPS
a. Background
As discussed in section II.A.1. of this final rule, starting in CY
2020, the Secretary was required by section 1895(b)(2)(B) of the Act to
change the

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unit of payment under the HH PPS from a 60-day episode of care to a 30-
day period of care. CMS was also required to make assumptions about
behavior changes that could occur as a result of the implementation of
the 30-day unit of payment and the case-mix adjustment factors that
eliminated the use of therapy thresholds. In the CY 2019 HH PPS final
rule with comment period (83 FR 56455), we finalized three behavior
change assumptions which were also described in the CY 2022 and 2023 HH
PPS rules (86 FR 35890, 87 FR 37614, and 87 FR 66795 through 66796). In
the CY 2020 HH PPS final rule with comment period (84 FR 60519), we
included these behavior change assumptions in the calculation of the
30-day budget neutral payment amount for CY 2020, finalizing a negative
4.36 percent behavior change assumption adjustment (``assumed
behaviors''). We did not propose any changes for CYs 2021 and 2022
related to the behavior change assumptions finalized in the CY 2019 HH
PPS final rule with comment period, or to the negative 4.36 percent
behavior change assumption adjustment, finalized in the CY 2020 HH PPS
final rule with comment period.
In the CY 2023 HH PPS final rule (87 FR 66796), we stated that we
had concluded, based on our annual monitoring at that time, that the
three expected behavior changes did in fact occur as a result of the
implementation of the PDGM and that other behaviors, such as changes in
the provision of therapy and changes in functional impairment levels,
had also occurred. We reminded readers that in the CY 2020 HH PPS final
rule with comment period (84 FR 60513), we interpreted actual behavior
changes to encompass behavior changes that were previously outlined as
assumed by CMS, as well as any other behavior changes even if they were
not identified at the time we established the 30-day payment rate for
CY 2020. In the CY 2023 HH PPS final rule (87 FR 66796), we reviewed
evidence indicating that the number of therapy visits declined in CYs
2020 and 2021. That evidence also indicated a slight decline in therapy
visits beginning in CY 2019 after we finalized our policy removing
therapy thresholds prior to implementing the PDGM. In section II.B.1.
of the CY 2025 HH PPS proposed rule (89 FR 55318), our analysis showed
that the actual 30-day periods remained similar to the simulated 30-day
periods. CMS is required, by law, to account for actual behavior
changes related to the implementation of the PDGM and change to a 30-
day unit of payment. Additionally, the statute instructs us to ensure
that estimated aggregate expenditures under the PDGM are equal to the
estimated aggregate expenditures that otherwise would have been made
under the prior system.
Although our analysis examines particular actual behavior changes,
some of which were part of our original assumed behavior assumptions
(for example, in the volume of visits for LUPAs, therapy visits, etc.),
the finalized methodology captures the entirety of all behavior changes
in order to calculate estimated aggregate expenditures.
Section 4142(a) of the CAA, 2023 required CMS to present, to the
extent practicable, a description of the actual behavior changes
occurring under the HH PPS from CYs 2020 through 2026. The provision
also required CMS to provide datasets underlying the simulated 60-day
episodes and discuss and provide time for stakeholders to provide input
on and ask questions about the payment rate development for CY 2023.
CMS accordingly posted online both the supplemental limited data set
(LDS) and descriptive files and the description of actual behavior
changes that affected CY 2023 payment rate development. Additionally,
on March 29, 2023, CMS conducted a webinar entitled ``Medicare Home
Health Prospective Payment System (HH PPS) Calendar Year (CY) 2023
Behavior Change Recap, 60-Day Episode Construction Overview, and
Payment Rate Development.'' The webinar was open to the public and
discussed the actual behavior changes that we determined had occurred
after we implemented the PDGM; our approach used to construct simulated
60-day episodes using 30-day periods; payment rate development for CY
2023; and information on the supplemental data files containing
information on the simulated 60-day episodes and actual 30-day periods
used in calculating the permanent adjustment to the payment rate.
Materials from the webinar, including the presentation and the CY 2023
descriptive statistics from the supplemental LDS files containing
information on the number of simulated 60-day episodes and actual 30-
day periods in CY 2021 that were used to construct the permanent
adjustment to the payment rate, as well as information such as the
number of episodes and periods by case-mix group, case-mix weights, and
simulated payments, can be found on the Home Health Patient-Driven
Groupings Model web page at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health/home-health-patient-driven-groupings-model">https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health/home-health-patient-driven-groupings-model</a>.
b. Method to Annually Determine the Impact of Differences Between
Assumed Behavior Changes and Actual Behavior Changes on Estimated
Aggregate Expenditures
In the CY 2023 HH PPS final rule (87 FR 66804), we finalized the
methodology to evaluate the impact of the differences between assumed
and actual behavior changes on estimated aggregate expenditures. In the
CY 2024 HH PPS final rule (88 FR 77687 through 77688), we provided an
overview of the methodology with more details for each step of the
calculation.
Under the prior 153-group system (and the first three years for
assessments associated with the PDGM completed prior to CY 2023), HHAs
submitted the Outcome and Assessment Information Set (OASIS) instrument
version D. However, effective January 1, 2023, HHAs were required to
submit an updated version of the OASIS instrument, OASIS-E. This would
mean for purposes of calculating the behavior adjustments, we would use
the CY 2023 OASIS-E assessments and CY 2023 claims in CY 2025
rulemaking. Therefore, in the CY 2025 HH PPS final rule (89 FR 88364),
we finalized two additional methodological assumptions related to
mapping and imputation of OASIS-D responses from OASIS-E. We refer
readers to the CY 2023, CY 2024, and CY 2025 HH PPS final rules for
further information about the methodology.
c. Calculating Permanent and Temporary Payment Adjustments
To adjust the base payment rate based on increases or decreases in
estimated aggregate expenditures that result from differences between
assumed behavior changes and actual behavior changes related to the
implementation of the PDGM and the change to a 30-day unit of payment
for 2020 through 2026, we calculate one or more permanent prospective
adjustments by calculating the percent change between the actual 30-day
base payment rate and the recalculated (``repriced'') 30-day base
payment rate. We then convert the percent change into an adjustment
factor and apply it in the annual rate update process.
To account for increases or decreases in estimated aggregate
expenditures that result from differences between assumed behavior
changes and actual behavior changes from 2020 through 2026, we
calculate one or more temporary prospective adjustments by calculating
the dollar amount difference

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between the estimated aggregate expenditures from all 30-day periods
using the recalculated 30-day base payment rate, and the aggregate
expenditures for all 30-day periods using the actual 30-day base
payment rate for each of those years once data is available (87 FR
66804). In other words, when determining the dollar amount of aggregate
expenditures in prior years that we must offset in future years, we use
the full dataset of actual 30-day periods using both the actual and
recalculated 30-day base payment rates to ensure that the utilization
and distribution of claims are the same. In accordance with section
1895(b)(3)(D)(iii) of the Act, each temporary adjustment applies
prospectively but, as its name suggests, only with respect to the year
for which such temporary increase or decrease is made. Therefore, after
we determine the dollar amount we plan to reconcile in a given year, we
calculate a temporary adjustment factor to be applied to the base
payment rate for that year. The temporary adjustment factor is based on
an estimated number of 30-day periods in the rate setting year using
historical data trends, and as applicable, controls for any permanent
adjustment factor, case-mix weight recalibration neutrality factor,
wage index budget neutrality factor, and the home health payment
update. The temporary adjustment factor is applied last since the
adjustment applies only to the respective year. That is, the temporary
adjustment is not permanently fixed into future base payment rates. We
refer readers to the CY 2024 HH PPS final rule (88 FR 77689 through
77694) for analysis of CYs 2020 through 2022 claims and the CY 2025 HH
PPS final rule (89 FR 88366 through 88369) for analysis of CY 2023
claims. Additionally, at the end of this section we provide a summary
table for the permanent adjustment and temporary dollar amounts
calculated for each year.
d. CY 2024 Final Claims Results
We continue the practice of using the most recent complete home
health claims data available at the time of rulemaking. This CY 2026
final rule thus uses the most current CY 2024 data for determining any
permanent and temporary adjustments to the CY 2026 payment rate using
the methodology finalized in the CY 2023 HH PPS final rule (87 FR
66804). This section of this final rule updates the calculations in the
CY 2026 HH PPS proposed rule (90 FR 29129) as we have updated these
calculations between the proposed and final rules in previous years.
However, while we consider the claims data and the permanent and
temporary adjustments results complete for CY 2026, any adjustments to
payment rates for future payment years may be subject to additional
considerations such as permanent adjustments taken in previous years.
The claims data used in rulemaking is released twice each year in
the HH PPS LDS file, one for the proposed and one for the final.
Accordingly, the HH PPS LDS file released with this final rule includes
two files: the actual CY 2024 30-day periods and the CY 2024 simulated
60-day episodes.
We remind readers that a data use agreement (DUA) is required to
purchase the CY 2026 final HH PPS LDS file using the CMS-R-0235A form
under OMB control number 0938-0734. Access will be granted for both the
30-day periods and the simulated 60-day episodes under one DUA. Visit
the HH PPS LDS web page for more information.\1\ In addition, the final
CY 2026 Home Health Descriptive Statistics from the LDS Files
spreadsheet is available on the HH PPS Regulations and Notices web
page,\2\ does not require a DUA, and is available at no cost to
interested parties. The spreadsheet contains information on the number
of simulated 60-day episodes and actual 30-day periods in CY 2024. The
spreadsheet also provides information such as the number of episodes
and periods by case-mix group, case-mix weights, and simulated
payments.
---------------------------------------------------------------------------

\1\ <a href="https://www.cms.gov/research-statistics-data-and-systems/files-for-order/limiteddatasets/home_health_pps_lds">https://www.cms.gov/research-statistics-data-and-systems/files-for-order/limiteddatasets/home_health_pps_lds</a>.
\2\ <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/Home-Health-Prospective-Payment-System-Regulations-and-Notices">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/Home-Health-Prospective-Payment-System-Regulations-and-Notices</a>.
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e. Applying the Methodology to CY 2024 Data To Determine the CY 2026
Permanent and Temporary Adjustments
As noted, section 1895(b)(3)(D)(i) of the Act requires us to
annually determine the impact of differences between assumed behavior
changes and actual behavior changes on estimated aggregate
expenditures, beginning with 2020 and ending with 2026. For this final
rule, we update our calculations presented in the CY 2026 HH PPS
proposed rule (90 FR 29129) that we had proposed using to determine the
CY 2026 permanent and temporary adjustments using the most up to date
claims data at the time of this final rule. This is similar to what we
have done in previous final rules to update the proposed rule
calculations. However, we do not finalize these calculated adjustments,
as we explain later in this section and in the final decision section.
We begin by applying the methodology finalized in the CY 2023 HH PPS
final rule and described most recently in the CY 2024 HH PPS final rule
(88 FR 77687 through 77688), as well as applying the two new
assumptions related to the OASIS-E mapping in the CY 2025 HH PPS final
rule (89 FR 88360 through 88365). We simulated 60-day episodes using
actual CY 2024 30-day periods to determine what the permanent and
temporary payment adjustments should be to offset for such increases or
decreases in estimated aggregate expenditures as a result of the impact
of differences between assumed behavior changes and actual behavior
changes.
Using the final CY 2024 dataset, as this is the most complete
claims data for this final rule, we began with 8,275,089 30-day periods
of care and dropped 495,480 30-day periods of care that had a claim
occurrence code 50 date after October 31, 2024. We also excluded
842,772 30-day periods of care that had a claim occurrence code 50 date
before January 1, 2025, to ensure the 30-day period will not be part of
a simulated 60-day episode that began in CY 2024. Applying the
additional exclusions and assumptions as described in the finalized
methodology (87 FR 66804), an additional 4,892 30-day periods were
excluded.
Additionally, we excluded 211,506 simulated 60-day episodes, which
consist of 393,108 30-day periods of care where no OASIS information
was available in the Chronic Conditions Warehouse (CCW) Virtual
Research Data Center (VRDC), a recent start of care/resumption of care
(SOC/ROC) OASIS was not available, a wage index was not available, or
the episode could not be grouped to a Health Insurance Prospective
Payment System (HIPPS) code due to a missing primary diagnosis or other
reason. Our simulated 60-day episodes of care produced a distribution
of two 30-day periods of care (70.7 percent) and single 30-day periods
of care (29.3 percent) that was similar to what we found when we
simulated two 30-day periods of care for implementation of the PDGM.
After all exclusions and assumptions were applied, the final dataset
for this final rule included 6,538,837 actual 30-day periods of care
and 3,849,780 simulated 60-day episodes of care for CY 2024.
Using the final dataset for CY 2024 (6,538,837 actual 30-day
periods which made up the 3,849,780 simulated 60-day episodes) and the
previously finalized methodology, we determined the estimated aggregate
expenditures under the pre-PDGM HH PPS were lower than the actual
estimated aggregate expenditures under the PDGM HH PPS.

[[Page 55355]]

As shown in table 2, aggregate expenditures under the PDGM were higher
than if the 153-group payment system were still in place in CY 2024 and
therefore, we determined the CY 2024 30-day base payment rate should
have been $1,914.73 based on the difference between the assumed
behavior changes and the actual behavior changes.
We then take the recalculated CY 2023 base payment of $1,875.46 (as
published in the CY 2025 HH PPS final rule (89 FR 88366)) and applied
the CY 2024 case-mix weights recalibration neutrality factor (1.0124),
the CY 2024 wage index budget neutrality factor (1.0012), the CY 2024
labor-related share budget neutrality factor (0.9998), and the CY 2024
home health payment update factor (1.030). We determined the CY 2024
base payment rate for assumed behavior would have been $1,957.63.
To convert this base payment rate to a payment adjustment, we
calculated the percent change between the two payment rates ($1,914.73
and $1,957.63)--which is equal to -2.191%. We also calculated the
difference in aggregate expenditures in dollars for all CY 2024 PDGM
30-day claims using the those payment rates: the CY 2024 PDGM payment
rate that is budget neutral to the aggregate expenditures generated
from the CY 2024 simulated 60-day episodes ($1,914.73) and the CY 2024
PDGM payment rate that incorporates the permanent adjustment
calculations through CY 2023 data. This difference is shown as the
retrospective dollar amount that will be recouped with one or more
temporary adjustments in future years. Our results for the CY 2024
annual (single year) permanent and temporary adjustment calculations
using CY 2024 final claims data and the methodology in our proposed
rule are shown in table 2. We reiterate that, as we explain further in
later sections, that we are not finalizing the permanent or temporary
payment calculated. Instead, the calculations that follow are being
presented to be consistent with how we have updated these adjustments
between the proposed and final rules in previous rulemaking.
[GRAPHIC] [TIFF OMITTED] TR02DE25.003

As shown in table 2, a permanent prospective adjustment of -2.192
percent to the CY 2026 30-day payment rate (assuming all adjustments
from prior years were applied) for CY 2024 would be required to adjust
for such increases in estimated aggregate expenditures in future years.
We remind readers, the permanent prospective adjustment of -2.192
percent is for illustrative purposes only and the annual (single year)
permanent adjustment cannot be added to previous annual adjustments.
Our final estimate of the CY 2024 base payment rate ($2,038.13)
resulted in excess expenditures of approximately $870 million in CY
2024.
We now have 5 years of claims data (CYs 2020 through 2024) under
the PDGM, and we have applied three permanent adjustments to the 30-day
payment rate (CYs 2023 through 2025) that together partially account
for the behavior changes we observed in the data, which we summarize in
table 3. We reiterate that, as we explain further, we are not
finalizing the permanent or temporary payment for CY 2024 reflected as
follows. And we remind readers these annual adjustments cannot be added
or multiplied together to determine the total permanent adjustment
needed for CY 2026 because each individual year requires an assumption
that all prior adjustments were taken.

[[Page 55356]]

[GRAPHIC] [TIFF OMITTED] TR02DE25.004

f. CY 2026 Permanent Adjustment and Temporary Adjustment Calculations
In the preceding section we updated the analysis in the proposed
rule using CY 2024 final claims data to determine the difference in
expenditures between the 30-day periods and the simulated 60-day
episodes. We now update the analysis in the proposed rule using CY 2024
final claims data converting that difference into permanent and
temporary payment adjustment. We reiterate that, as we explain further,
we are not finalizing the permanent or temporary payment calculated in
this section.
Again, that analysis included simulations that assumed the full -
3.95 percent payment adjustment (the calculated CY 2025 permanent
adjustment) was already taken. We note that CMS implemented a payment
adjustment of -1.975 percent for CY 2025, rather than the -3.95 percent
we calculated (89 FR 88373), so the calculations set forth later in
this section would be the remaining adjustments not applied in previous
years (that is, CYs 2020 through 2023 claims data), as well as the
adjustment needed to account for CY 2024 claims. In calculating the
full permanent adjustment needed to the CY 2026 30-day payment rate, we
compare estimated aggregate expenditures under the PDGM and the prior
system. Unlike the annual adjustments described in table 3, we do not
assume the full adjustment from prior years had been taken.
As discussed in section II.C.1.d. of this final rule, using the
final dataset for CY 2024 (6,538,837 actual 30-day periods which made
up the 3,849,780 simulated 60-day episodes) we determined the CY 2024
30-day base payment rate would have been $1,914.73 if calculated based
on actual behavior compared to assumed behavior. We then compared the
$1,914.73 CY 30-day base payment rate based on actual behavior to the
CY 2024 30-day base payment rate of $2,038.13 we paid based on assumed
behaviors. The percent change, as summarized in table 4, between the
actual CY 2024 base payment rate of $2,038.13 (based on assumed
behaviors) and the CY 2024 recalculated base payment rate of $1,914.73
(based on actual behaviors) is the total permanent adjustment
reflecting CYs 2020 through 2024 claims.
[GRAPHIC] [TIFF OMITTED] TR02DE25.005

As shown in table 4 a permanent prospective adjustment of -6.055
percent to the CY 2024 30-day payment rate is required to offset for
such increases in estimated aggregate

[[Page 55357]]

expenditures in future years. To illustrate this calculation:
[GRAPHIC] [TIFF OMITTED] TR02DE25.006

As we stated in the CY 2025 HH PPS final rule (89 FR 88373),
applying a -1.975 percent (half of the final calculated -3.95 percent)
permanent adjustment to the CY 2025 30-day payment rate did not adjust
the rate fully to account for differences in behavior changes on
estimated aggregate expenditures in CYs 2020, 2021, 2022, and 2023.
Using CY 2024 claims data, as shown in table 4, a permanent prospective
adjustment of -6.055 percent to the CY 2024 30-day payment rate is
required to offset for such increases in estimated aggregate
expenditures for CYs 2020 through 2024. We remind readers adjustment
factors are multiplied in this payment system and individual numbers
(that is, percentages) cannot be added or subtracted together to
determine the final adjustment. Therefore, we cannot determine the CY
2026 final permanent adjustment, which will include estimated aggregate
expenditures in CY 2024, by simply subtracting the -1.975 percent
applied in CY 2025 from the total permanent adjustment of -6.055
percent as shown in table 4.
Instead, we account for the permanent adjustment applied in CY 2025
of -1.975 percent when we calculate the CY 2026 permanent adjustment by
solving the following equation (1 - 0.01975) x (1 - x) = (1 - 0.06055).
To illustrate this calculation we used the following approach.
[GRAPHIC] [TIFF OMITTED] TR02DE25.007

x = 0.95838
x = 0.04162 (that is, 4.162 percent)
As shown previously, this methodology would suggest a -4.162
percent permanent adjustment for CY 2026. Accounting for the previous
permanent adjustments applied to the 30-day payment rate in CYs 2023,
2024, and 2025, we can simulate the permanent adjustment calculation
with the simulated annual permanent adjustment percentage shown
previously for CY 2026:

Annual Permanent Adjustments Calculated: \3\
---------------------------------------------------------------------------

\3\ The annual permanent adjustments are for illustrative
purposes only and the annual (single year) permanent adjustments
cannot be combined to calculate the total permanent adjustment
proposed and finalized in rulemaking.
---------------------------------------------------------------------------

CY 2020 Claims = -6.52% (87 FR 66805)
CY 2021 Claims = -1.42% (87 FR 66806)
CY 2022 Claims = -1.767% (88 FR 77692)
CY 2023 Claims = -1.004% (89 FR 88366)
CY 2024 Claims = -2.192% (Table 3)
Permanent Adjustments Applied:

CY 2023 Rate = -3.925% (88 FR 66808)
CY 2024 Rate = -2.890% (88 FR 77697)
CY 2025 Rate = -1.975% (89 FR 88373)
Illustrative Equation:

(1-0.0652)(1-0.0142)(1-0.01767)(1-0.01004)(1-0.02192) = (1-
0.03925)(1-0.0289)(1-0.01975)(1-x)
Solving, x = 4.162%.

In table 5, we provide the base payment rate for what CMS actually
paid, the recalculated base payment rate for what CMS should have paid,
the total permanent adjustments calculated from the base payment rates
(accounts for any adjustments taken prior), and the permanent
adjustment applied.

[[Page 55358]]

[GRAPHIC] [TIFF OMITTED] TR02DE25.008

In the CY 2023, 2024, and 2025 HH PPS final rules (87 FR 66790, 88
FR 77696, 89 FR 88373), we acknowledged that the full permanent
adjustment in a single year may be burdensome for some providers. As
shown in table 5, we finalized only half of the permanent adjustment
percentages in CYs 2023 through 2025 final rules. We explained in the
CY 2023, 2024, and 2025 HH PPS final rules (87 FR 66808, 88 FR 77697,
89 FR 88373) that when we apply a reduced permanent adjustment, we may
need to continue to implement a reduction in future years to satisfy
the statutory requirements. However, we recognize that only applying
half of the calculated permanent adjustments in previous years has
contributed to the significant growth of the temporary adjustment. In
the CY 2026 HH PPS proposed rule (90 FR 29133), we proposed to apply
the full permanent adjustment we (then) calculated of -4.059 percent,
noting that we would update this percentage using more complete claims
data in the final rule, to satisfy the statutory requirements at
section 1895(b)(3)(D) of the Act to offset any increases or decreases
on the impact of differences between assumed behavior and actual
behavior changes on estimated aggregate expenditures, reduce the need
for any future large permanent adjustments, and help slow the accrual
of the temporary payment adjustment amount. Using more complete claims
data, and as calculated previously, the permanent adjustment to the CY
2026 30-day payment rate would be a reduction of 4.162 percent.
As described previously in this final rule, to account for such
increases or decreases in estimated aggregate expenditures as a result
of the impact of differences between assumed behavior changes and
actual behavior changes in any given year from 2020 to 2026, we
calculate one or more temporary prospective adjustments by calculating
the dollar amount difference between the estimated aggregate
expenditures from all 30-day periods using the recalculated 30-day base
payment rate, and the aggregate expenditures for all 30-day periods
using the actual 30-day base payment rate for that year. In other
words, when determining the temporary retrospective dollar amount, we
used the full dataset of actual 30-day periods using both the actual
and recalculated 30-day base payment rates to ensure that the
utilization and distribution of claims are the same. We refer readers
to the CY 2024 HH PPS final rule (88 FR 77689 through 77694) for
analysis of CYs 2020 through 2022 claims, the CY 2025 HH PPS final rule
(89 FR 88366 through 88369) for analysis of CY 2023 claims, and section
II.C.1.d. of this final rule for the analysis of CY 2024 claims. Table
6 provides a summary of the temporary adjustment dollar amount for CYs
2020 through 2026 as shown in the CY 2026 proposed rule (90 FR 29132).

[[Page 55359]]

[GRAPHIC] [TIFF OMITTED] TR02DE25.009

Our analysis continues to show estimated aggregate expenditures are
higher under the PDGM than if those same claims were paid under the
prior 153-group system, though the data also show that the permanent
adjustments we implemented in CY 2023 and CY 2024 successfully brought
estimated aggregate expenditures closer to the statutorily required
budget neutrality. In the CY 2022 HH PPS proposed rule (86 FR 65884),
the CY 2023 HH PPS proposed rule (87 FR 37608), the CY 2024 HH PPS
proposed rule (88 FR 43664), the CY 2025 HH PPS proposed rule (89 FR
55320), and CY 2026 HH PPS proposed rule (90 FR 29119), our analysis
has shown that the annual national standardized 30-day period payment
rate has exceeded the average estimated 30-day period cost. In
addition, MedPAC has continued to find that FFS Medicare payments for
home health care are substantially in excess of costs.\4\
---------------------------------------------------------------------------

\4\ <a href="https://www.medpac.gov/wp-content/uploads/2025/03/Mar25_Ch7_MedPAC_Report_To_Congress_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/03/Mar25_Ch7_MedPAC_Report_To_Congress_SEC.pdf</a>.
---------------------------------------------------------------------------

Given these facts, we exercised our authority under section
1895(b)(3)(D)(iii) of the Act to propose applying ``one or more''
temporary adjustments to begin recoupment of the retrospective
overpayments for CYs 2020 through 2024. Even though we have not yet
calculated the temporary dollar amounts for CYs 2025 through 2026, we
have done so for CYs 2020 through 2024, and the cumulative amount is
substantial. Beginning to adjust the base payment rate now to account
for the calculated temporary dollar amount to date may help reduce the
need for a larger reduction in future years. We estimated that
collecting the full temporary dollar amount of $5,331,234,432 in a
single year (as shown in table 6) would require an approximate 34
percent reduction to the CY 2026 base payment rate. Additionally, we
anticipate that we will need to make additional adjustments for CYs
2025 and 2026, once data for those years are available.
We have stated in past rules that implementing both the permanent
and temporary adjustments in the same year may be burdensome to HHAs;
however, in the CY 2026 HH PPS proposed rule (90 FR 29133), we proposed
to implement a -5.0 percent temporary adjustment (rather than the
estimated 34 percent) along with the permanent adjustment to reduce
larger temporary adjustments in future years. Beginning to apply only a
portion of the temporary adjustment in CY 2026 balances the underlying
statutory goal of budget neutrality against any hardship to HHAs.
We proposed implementing a 5.0 percent reduction in CY 2026, that
is equivalent to a 0.9500 temporary adjustment factor, to the CY 2026
national, standardized payment rate. Using historical trends, we
estimated 7,723,632 number of 30-day periods will occur in CY 2026.
Using this estimated utilization, a 5.0 percent reduction to the CY
2026 30-day payment rate would collect approximately $786 million of
the total temporary adjustment dollar amount, equating to about 14.7
percent of the total $5.3 billion shown in table 6. In doing so,
however, we will need to account for the remaining temporary adjustment
dollar amount for CYs 2020 through 2024, plus any possible adjustments
for CY 2025 and 2026, in future years. It is important to note that the
estimated $786 million dollar amount anticipated to be collected by

[[Page 55360]]

the implementation of the temporary adjustment factor is based on an
estimate of the number of 30-day periods that will occur in CY 2026. It
may not reflect the actual dollar amount to be collected if the actual
number of 30-day periods and other utilization trends in CY 2026 differ
from what was estimated. In other words, CMS will calculate the actual
amount collected from the temporary adjustment in CY 2026 and credit it
to the overall cumulative temporary dollar amount.
In accordance with section 1895(b)(3)(D)(iii) of the Act, we
proposed applying the temporary adjustment on a prospective basis and
only with respect to the year for which such a temporary increase or
decrease is made. This means we will not include the -5.0 percent
temporary adjustment applied for CY 2026 when calculating the CY 2027
base payment rates. However, to continue recoupment of the
retrospective overpayments we may propose additional temporary
adjustments in future rulemaking, whether -5.0 percent or a different
amount. We will continue to analyze the data each year through CY 2026
claims as required by law, and in a time and manner deemed appropriate
we would propose one or more additional temporary adjustments to
account for retrospective overpayments. We refer readers to section
II.E.3.b. of this final rule for the CY 2026 base payment rates with
and without the temporary adjustment.
We solicited comments on the proposals to apply the permanent
adjustment of -4.059 percent (-4.162 percent using more complete claims
data) and the -5.0 percent temporary adjustment to the CY 2026 home
health base payment rate. One commenter, the Medicare Payment Advisory
Commission (MedPAC), supported the proposed permanent and temporary
payment adjustments for CY 2026. MedPAC stated that the reduction to
the base payment rate is generally consistent with their most recent
recommendation calling for a seven percent reduction. They also stated
that the home health base payment rate currently exceeds the estimated
cost of a typical 30-day payment period by 33 percent. We received
numerous comments opposing the permanent and temporary adjustment
proposals as summarized as follows.
(1) Excluding Data From HHAs With Anomalous Behavior
Comment: Several commenters expressed concerns that the data used
in the calculation is being influenced by potential fraudulent behavior
and anomalous utilization from some home health agencies, as evidenced
by potential cost report fraud and outlier billing patterns,
specifically in Los Angeles (LA) County, and should not be included in
the methodology used to set a national base payment rate. Many
commenters also stated that the adjustments should target agencies
committing billing fraud, rather than making ``blanket adjustments'' to
the home health payment rate based on HHAs who reduced therapy visits
in order to increase payments.
Additionally, commenters stated that cost reports are largely non-
representative of actual costs to provide care. They stated that the
underreporting of costs can be due to the design and/or
misunderstanding of the intent of the cost reports themselves; however,
the commenter acknowledged that it is also a consequence of more
providers not giving the cost reports the attention that they deserve.
Commenters also cited lack of auditing by CMS to ensure cost reports
are completely and accurately filled out.
A commenter stated that the current strategy creates a feedback
loop whereby reduced reimbursements result in HHAs being less capable
of providing the same number of therapy visits, triggering CMS to
further reduce reimbursements because fewer visits are provided.
Similarly, a commenter suggested CMS review the home health agency
admission criteria to ensure that agencies are not exclusively
admitting patients that may perform favorably on OASIS outcomes
assessments and/or have a lower probability of hospitalization as a
consideration for targeted payment adjustments.
Response: Both cost reports and claims are used as part of the rate
setting for home health. We remind commenters that each HHA Medicare
cost report is required to be certified by the Officer or Director of
the home health agency as being true, correct, and complete, with
potential penalties should any information in the cost report be a
misrepresentation or falsification of information. Specifically, 42 CFR
413.24(f)(4)(iv)(B) states that misrepresentation or falsification of
any information contained in this cost report may be punishable by
criminal, civil and administrative action, fine and/or imprisonment
under federal law. Furthermore, if services identified in this report
were provided or procured through the payment directly or indirectly of
a kickback or were otherwise illegal, criminal, civil and
administrative action, fines and/or imprisonment may result. CMS must
rely on the accuracy and completeness of cost report data when
analyzing home health costs. Using HHA Medicare cost report data as one
piece of the methodology to establish the case-mix relative weight
aligns with the use of this data in determining the base payment amount
under the HH PPS.
As discussed in the CY 2019 final rule (83 FR 56451), we use a
trimming methodology described in detail in the ``Analyses in Support
of Rebasing & Updating Medicare Home Health Payment Rates'' Report
available at: <a href="https://www.cms.gov/medicare/medicare-fee-for-service-payment/homehealthpps/downloads/analyses-in-support-of-rebasing-and-updating-the-medicare-home-health-payment-rates-technical-report.pdf">https://www.cms.gov/medicare/medicare-fee-for-service-payment/homehealthpps/downloads/analyses-in-support-of-rebasing-and-updating-the-medicare-home-health-payment-rates-technical-report.pdf</a>.
This methodology trims out values that fall in the top or bottom 1
percent of the distribution across all HHAs (that is, possible
``questionable'' data). Normalizing data by trimming out missing or
extreme values is a widely accepted methodology both within CMS and
amongst the health research community. In eliminating missing or
questionable data with extreme values from the data we obtain a more
robust measure of average costs per visit that is reliable for the
purposes of establishing base payment amounts and case-mix weights
under the HH PPS.
Furthermore, not all anomalous billing patterns indicate fraudulent
practice, and we would need further evidence to determine which
providers with anomalous billing patterns can be connected to
fraudulent practices. Excluding data some commenters view as
``anomalous'' from the calculation of the national 30-day base payment
rate, would thus require CMS to develop a new policy, including
thresholds for determining deviations excluded from the analytical
sample.
As always, we encourage providers to fill out the Medicare cost
reports as accurately as possible. We note that there are efforts to
monitor cost reports if there are concerns over the reported
information. CMS audits home health cost reports through the Medicare
Administrative Contractors (MACs) and the Center for Program Integrity
(CPI). The cost report certification and associated penalties generally
encourages HHAs to accurately represent the incurred costs of providing
home health care. Any additional thresholds used for the exclusion
criteria based on data anomalies would need to be discussed during
notice and comment rulemaking. We have not proposed such considerations
previously and we decline to do so now because we must balance
commenter concerns about

[[Page 55361]]

reducing the number of claims through too many exclusions, which could
also impact the results, with commenter concerns about possible
fraudulent behavior which may be limited to a small subset of
providers.
We do consider anomalous patterns to determine whether we should
review cost reports and claims and might initiate investigation for
evidence of fraud, waste, and abuse. CPI determines which providers may
warrant program integrity actions. We generally have not excluded
providers accused of fraud, waste, and abuse from samples before
completing the adjudicatory process, and decline to do so for LA county
claims. In addition, excluding all LA County claims might be
overinclusive: anomalies have not shown up in the data from all home
health providers in LA county, and even for those with anomalous data,
investigation might vindicate their claims.
In previous rules, commenters have suggested targeted payment
adjustments to certain providers, even under the previous 153-group
payment system. We addressed these suggestions in the CY 2016 HH PPS
and CY 2019 HH PPS final rules (80 FR 68421 and 83 FR 56455,
respectively). In those rules we stated that this strategy is not
viable, given the widespread nature of coding changes and improvements,
small sample sizes of agencies with significant nominal case-mix across
different classes of agencies, and difficulty in precisely
distinguishing the agencies that engage in abusive coding and other
behaviors from all others. Additionally, we reiterate that we are
required to make temporary and permanent payment adjustments to the
national, standardized 30-day period payment rate based on the impact
of differences between assumed versus actual behavior change, in
accordance with sections 1895(b)(3)(D)(ii) and (iii) to offset for such
increases or decreases in estimated aggregate expenditures. These
adjustments are not intended to account for coding abuses by specific
HHAs, but rather overall behavior changes CMS observes across the
system.
Cost report fraud and abusive billing behavior are concerns that
need to be addressed by the appropriate channels with the authority to
apply enforcement action, such as the hotline for reporting fraud at
the following website: <a href="https://www.cms.gov/medicare/medicaid-coordination/center-program-integrity/reporting-fraud">https://www.cms.gov/medicare/medicaid-coordination/center-program-integrity/reporting-fraud</a>.
(2) Provider Margins and Access
Comment: Commenters expressed concerns that CMS does not consider
all-payer margins when considering application of the behavior payment
adjustments. Commenters suggested that CMS should consider all-payer
margins as these are much lower than Medicare margins and therefore CMS
should not apply a downward adjustment to the payment rate because this
would result in all-payer margins going even lower and will cause HHAs
to go out of business. Some commenters referenced analysis from the CMS
Office of the Actuary (OACT) \5\ regarding providers with negative
total facility margins. Commenters stated that OACT estimated that over
one-third of HHAs have negative total profit margins with simulations
suggesting that measure approaches nearly 45 percent by 2027 and nearly
60 percent by 2040. One commenter stated that this likely means
agencies will place a heavier emphasis on keeping higher margins and
reduce services to patients generating smaller payments, while another
commenter stated directly that their agency will be forced to reduce
their geographic service region, particularly the rural areas, in order
to avoid financial losses. Some commenters also stated the adjustments
would inhibit providers from investing in needed technology such as
remote patient monitoring, electronic health records, and artificial
intelligence that could ultimately save Medicare money. Commenters
stated again that CMS needs to consider all-payer margins for home
health rather than simply Medicare FFS margins. We also received
several comments stating that further payment rate reductions will
affect other payers that use Medicare as a benchmark to set payment
(for example, Medicare Advantage (MA) plans).
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\5\ <a href="https://www.cms.gov/files/document/simulations-affordable-care-act-medicare-payment-update-provisions-part-provider-financial-margins.pdf-0">https://www.cms.gov/files/document/simulations-affordable-care-act-medicare-payment-update-provisions-part-provider-financial-margins.pdf-0</a>.
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Response: We have considered OACT's report, which projected the
impact of certain updates the Affordable Care Act made to Medicare
payment rates on Part A provider financial margins.\6\ We note that
HHAs that are hospital-based have shown negative margins for numerous
consecutive years, which MedPAC has suggested can be traced to how
hospital-based HHAs allocate overhead costs from its parent hospital
instead of the actual costs of providing home health care for which the
home health payment system is meant to account.\7\ Our analysis from
the CY 2024 HH PPS final rule, shown in Table B6 (88 FR 77695),
indicates that even prior to the PDGM, approximately 20 to 23 percent
of freestanding HHAs had margins below zero percent, indicating that
this phenomenon pre-dated the PDGM, and is not the result of the
behavior adjustments related to the initial behavior assumptions
applied in CY 2020 (88 FR 77695). In addition, the OACT report
indicated that the percentage of HHAs with negative total facility
margins was similar in 2011 and 2023.
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\6\ Ibid.
\7\ <a href="https://www.medpac.gov/wp-content/uploads/2025/03/Mar25_Ch7_MedPAC_Report_To_Congress_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/03/Mar25_Ch7_MedPAC_Report_To_Congress_SEC.pdf</a>.
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With respect to the comment that CMS must look at the HHA's overall
financial condition (that is, overall margins) or consider MA rates
when setting FFS payment rates, we have never endorsed the view that
Medicare funds allocated for FFS should be used to subsidize
reimbursement rates from other payers, a policy that would be
inconsistent with our obligation to be responsible stewards of the
Medicare Trust Funds and would ultimately increase costs to Medicare
beneficiaries, taxpayers, or both.
Comment: Many commenters noted a decrease in the number of HHAs,
with some claiming that CMS data suggests that over 1,000 HHAs have
closed between 2019 and 2024, and that home health users decreased by
20 percent. A commenter stated that hundreds of counties have become
``home health deserts'', meaning areas with a lack of HHAs, and
specifically with declines in the number of HHAs of 40 percent or more.
Several commenters also presented post- inpatient hospitalization
discharge analysis showing declines in home health usage. Commenters
stated that this would then increase overall Medicare spending, as
beneficiaries would be forced to receive care in more expensive
facilities such as hospitals and skilled nursing facilities. One
commenter stated that the proposed rule fails to address previous
evidence from providers, hospitals, and patients showing declining
access to the benefit. Another commenter noted that HHAs would not be
able to maintain the current level of access to care, particularly in
an environment that far outweighs increases in payment and surges in
administrative and staffing costs, which have more than doubled in
recent years. Another commenter recommended CMS conduct a comprehensive
impact analysis to determine how access has been affected before
finalizing the proposed behavior adjustments. Commenters state that the
behavior adjustments should not be applied to mitigate further closures
of HHAs thereby creating access issues for beneficiaries.
Response: The CMS market saturation data set suggests that the
change in the

[[Page 55362]]

number of Medicare-certified HHAs is relatively small: the data
reflects a 2.5 percent decrease from 2020-2025.\8\ MedPAC suggests that
much of the decline in the volume of home health use has been driven by
a reduction in the number of beneficiaries in FFS Medicare, as a
growing share of beneficiaries enroll in MA.\9\ When controlling for
FFS enrollment, the number of 30-day periods in 2023 decreased by 1.8
percent. At the same time, the share of FFS beneficiaries using home
health has also declined, falling 2.3 percent in 2023.\10\
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\8\ <a href="https://data.cms.gov/summary-statistics-on-use-and-payments/program-integrity-market-saturation-by-type-of-service/market-saturation-utilization-core-based-statistical-areas">https://data.cms.gov/summary-statistics-on-use-and-payments/program-integrity-market-saturation-by-type-of-service/market-saturation-utilization-core-based-statistical-areas</a>.
\9\ <a href="https://www.medpac.gov/wp-content/uploads/2025/06/Jun25_ExecutiveSummary_MedPAC_Report_To_Congress_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2025/06/Jun25_ExecutiveSummary_MedPAC_Report_To_Congress_SEC.pdf</a>.
\10\ Ibid.
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Using the CMS saturation data \11\ within 2024, we do see some
evidence of a reduction in the number of HHAs in certain geographic
areas. The geographic areas that experienced decreases in providers
serving the CBSA relative to 2023 are also likely to have a relatively
low number of providers, such as Salisbury, Maryland and Hood River,
Oregon. There are also areas that saw a decrease in providers, with an
accompanying increase in number of home health users and increase in
total payment change, such as Thomasville, Georgia and Clewiston,
Florida. The dataset provides an incomplete view of how HHAs entering
or exiting the market may affect home health use and total payments in
the area. The differences in changes in total payments in the area and
the resulting geographic market dynamics will likely vary based on the
hospitals operating in the area, number of competing HHAs operating in
the area, number of Medicare FFS beneficiaries, penetration of MA
enrollment, number of post-acute facilities, dual-eligible
beneficiaries, Medicaid policy for the state, as well as many other
factors. While we agree that there are data that support some areas
with reductions in HHAs, we note that this may not be solely
attributable to the payment adjustments as there are other factors, as
described previously, that could contribute to the ebb and flow of HHAs
entering and exiting the market.
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\11\ <a href="https://data.cms.gov/summary-statistics-on-use-and-payments/program-integrity-market-saturation-by-type-of-service/market-saturation-utilization-core-based-statistical-areas">https://data.cms.gov/summary-statistics-on-use-and-payments/program-integrity-market-saturation-by-type-of-service/market-saturation-utilization-core-based-statistical-areas</a>.
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Commenters presented an analysis similar to the post-discharge
analysis that we discussed in the CY 2025 HH PPS final rule (89 FR
88372). We found that 76 percent of acute inpatient hospital referrals
have home health claims within 7 days of discharge compared to 62.6
percent of referrals from short-stay acute inpatient stays presented by
the commenters.
We also presented the percentage of Medicare FFS home health claims
within seven days of discharge by the preceding claim type in Figure 8
of the CY 2025 HH PPS final rule (89 FR 88372). In our analysis we
found an average of 80 percent, 79 percent, and 75 percent using home
after discharge to home health for 2018 (pre-PDGM), 2020 (PDGM), and
2023 (PDGM) respectively for Medicare FFS beneficiaries (89 FR 88372).
In addition, MedPAC noted that data reported by HHAs to CMS indicate
that 96.1 percent of home health services were initiated in a timely
manner in 2023, a rate that was stable relative to 2022. As such, we do
not believe that access has been compromised greatly since the
implementation of the behavior adjustments, nor do we see statistical
evidence presented by commenters, rather, anecdotal evidence.
(3) Methodological Concerns
Comment: Commenters suggested technical flaws in the methodology to
determine the impact of differences between assumed behavior changes
and actual behavior changes on estimated aggregate expenditures. These
commenters also recommended changes to the methodology for the
calculation of the permanent and temporary adjustments. Specifically,
some commenters stated that CMS should account for decreases in home
health payments from CYs 2020 through 2024, shrinking FFS enrollment,
and payment offsets occurring through lower MA benchmarks.
Response: Commenters have suggested that there are technical flaws
in the methodology in previous rulemaking (87 FR 66797). Specifically,
previous commenters suggest that the methodology does not compare
behaviors assumed by CMS in establishing the CY 2020 rate to actual
behaviors observed on aggregate expenditures. We have responded to
these concerns in past rulemaking stating that CMS is not required to
correct or quantify each original assumption regarding HHA behavior
change, but rather, ensure that the payment rate is accurately
accounting for all behaviors related to the implementation of the PDGM
and the 30-day unit of payment that actually occurred in a given year.
We remind commenters that the changes in the aggregate expenditures
under the PDGM between different years are not part of the repricing
process and therefore not a variable in the methodology used to
calculate the permanent and temporary adjustments. CMS continues to
reiterate that the methodology is technically accurate in that it
captures actual changes in behavior that have been explained in
previous rulemaking, as well as this final rule. As required by law,
our methodology compares aggregate expenditures between the actual 30-
day periods and simulated 60-day episodes paid under the prior payment
system within a single claims' year to determine what the payment rate
should be to ensure that payments under the two systems would be equal.
We recognize the overall decline of home health utilization and
payments over time, decreasing Medicare FFS enrollment, and the growing
share of enrollment in MA. In their most recent report, MedPAC states
that when controlling for FFS enrollment, the number of 30-day periods
in 2023 decreased by 1.8 percent from 2022.\12\ However, we remind
commenters that the statutory requirements for the permanent and
temporary adjustments do not state that we need to account for changes
in MA benchmarks. When setting home health payment rates, we look only
at Medicare FFS home health payments, not MA payment rates, and have a
legal obligation to reimburse costs for expenditures made under
Medicare FFS based on 42 CFR part 413.5. In addition, it is unclear how
we would separate out total home health expenditures from MA as
individual provider payments differ amongst varying MA plans.
Furthermore, home health payments from MA plans are not available in
encounter claims and provider payments from different MA plans are
considered proprietary information, which CMS cannot access.
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\12\ MedPAC--March 2025 Report to Congress Chapter 7.
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Comment: Commenters suggested that CMS not apply the exclusions
finalized in the CY 2023 final rule (87 FR 66804) for pricing simulated
60-day episodes, stating that excluded episodes have different
characteristics than those included and introduce systemic bias
undermining the accuracy of CMS's calculations. Commenters expressed
concern over the increasing percentage of 30-day periods excluded from
the sample. Commenters recommended that we include data that is
currently excluded in our process for creating simulated 60-day
episodes.
Response: We previously explained that the exclusion criteria in
the finalized methodology dropped 30-day periods of care that had a
claim occurrence code 50 after October 31,

[[Page 55363]]

2024, and before January 1, 2024, to ensure the 30-day period will not
be part of a simulated 60-day period that began in 2023 and to ensure a
simulated 60-day episode (simulated from two 30-day periods) does not
overlap years (90 FR 29129). Additional exclusions include 60-day
periods where no OASIS information was available, a recent SOC/ROC
OASIS was not available, a wage index was not available, or the episode
cannot be grouped to a Health Insurance Prospective Payment System
(HIPPS) code due to a missing primary diagnosis or other reason. All
the exclusion criteria are applied because the criteria are needed to
appropriately price the simulated 60-day episodes for within the year
the claims would have been paid. It is not relevant whether the 30-day
periods that are excluded have different case-mix characteristics or
higher visits if the 30-day periods are not able to be repriced
accordingly as a simulated 60-day period. As stated in previous
rulemaking (87 FR 66804), without these exclusions, we would not be
confident we were appropriately grouping 30-day periods into simulated
60-day episodes. The excluded 30-day periods would need to show large
differences compared to the episodes that were not excluded in order to
significantly change the estimated aggregate expenditures from the 60-
day episodes to produce significant revisions to our calculations.
Additionally, the permanent adjustment is based on the percentage
change between the payment rates (which utilizes the same claims), and
the temporary adjustment is based on the aggregate expenditures of all
claims (that is, no exclusions) using the two payment rates (that is,
the actual payment rate and the budget neutral payment rate with the
permanent adjustment applied). Therefore, we do not believe that the
small portion of excluded claims significantly biased our results.
Comment: A commenter noted roughly 40 percent of the diagnoses
previously allowed under the prior payment system are no longer
accepted as a primary diagnosis under the PDGM. This commenter stated
that this change may impact coding behavior and could potentially lead
to the simulated 60-day episodes being inaccurately assigned.
Response: We refer readers to the CY 2023 HH PPS final rule (87 FR
66803) for a detailed response to this comment. In that rule, we stated
that, while we acknowledge 41 percent (29,948) of all the diagnosis
codes are not assigned a clinical group under the PDGM, we disagree
that those unassigned codes would have created any significant
difference in assigning the clinical level in the 153-group case-mix
system. For example, out of all the diagnosis codes available in the
final grouper for the 153-group case mix system, only 22 percent
(15,936) of the diagnosis codes could potentially contribute to the
clinical score. Of those codes which could have contributed to the
clinical score, only 6.99 percent (1,114) of the diagnosis codes are
not accepted as a principal diagnosis under the PDGM.
Comment: Several commenters suggested that when simulating 60-day
episodes we should update the calculation of payment under the prior
system by including an update for recalibration of case-mix group
weights and fixed dollar loss (FDL) for outlier payments. Commenters
raised concerns about recalibration not controlling for the impact of
COVID-19. Commenters claim that this introduces challenges in
determining whether changes were due to PDGM or pandemic-related
disruptions. These commenters stated that during the COVID-19 pandemic,
hospitals discharged differently and there were more staffing shortages
and telehealth substitution for visits, which was not representative of
long-term care delivery. Commenters specifically noted that CMS did not
apply any COVID-specific exclusions, implement control periods,
spillover analysis, or validation checks in the methodology. Commenters
referred to these issues as a methodological gap that undermines the
validity of CMS's behavior adjustment calculations.
Response: If we were to implement an updated FDL instead of using
the finalized CY 2020 final rule FDL to determine outlier payments
under the simulated episodes, it is unclear whether it would be an
accurate representation to retrospectively assign the necessary FDL to
hit a 2.5 percent target for the years after CY 2020. In addition,
updating the FDL for the 153-group payment system would require an
iterative process to adjust the PDGM FDL used in repricing to also hit
the 2.5 percent target of total PDGM expenditures. We note that the 2.5
percent is only a target amount that is set prospectively and is never
reconciled and adjusted for.
If we were to implement recalibration of case-mix weights
(including early vs. late visits or admission source) when determining
aggregate payments under the 60-day payment system, the aggregate
expenditures would not change because we would implement the
recalibration of case-mix weights in a budget neutral manner. In other
words, although the case-mix weights themselves may increase or
decrease from year-to-year, we correspondingly offset any estimated
increases or decreases in total payments under the HH PPS, as a result
of the case-mix recalibration, by applying a budget neutrality factor
to the national, standardized payment rate. Recalibrating the pre-PDGM
case-mix weights to reflect changes due to COVID-19 would not increase
the aggregate payments estimated for simulated 60-day periods paid
under pre-PDGM. Since we are comparing a single year of data priced
under the PDGM and 153-group case-mix system, COVID-19 wouldn't bias
the PDGM payments differently than the 153-group or vice-versa. In the
CY 2022 HH PPS final rule (86 FR 62249), we discussed the influence of
the COVID-19 PHE on home health utilization and finalized a proposal to
recalibrate the PDGM case-mix weights, functional impairment levels,
and comorbidity subgroups while maintaining the LUPA thresholds for CY
2022. We stated that, because there are several factors that contribute
to how the case-mix weight is set for a particular case-mix group (such
as the number of visits, length of visits, types of disciplines
providing visits, and non-routine supplies) and the case-mix weight is
derived by comparing the average resource use for the case-mix group
relative to the average resource use across all groups, we believed the
COVID-19 PHE would have impacted utilization within all case-mix groups
similarly. Therefore, the impact of any reduction in resource use
caused by the COVID-19 PHE on the calculation of the case-mix weight
would be minimal since the impact would be accounted for both in the
numerator and denominator of the formula used to calculate the case-mix
weight.
Comment: Many commenters recommended that CMS apply the Patient
Driven Payment Model (PDPM) parity adjustment methodology used in the
CY 2023 Skilled Nursing Facility (SNF) PPS final rule (87 FR 47502) to
the PDGM data.
Response: As we stated in the CY 2023 HH PPS final rule (87 FR
66802), the SNF PPS and HH PPS are different; SNFs are paid a per-diem
payment with different case-mix variables, and HHAs are paid under a
bundled payment system. In addition, unlike the requirements of the SNF
PPS parity adjustment, CMS is required, by law, to account for behavior
changes related to the implementation of the PDGM, which CMS did by
comparing actual PDGM claims to what the same utilization (for example,
visits, OASIS responses, etc.) would look like under a 60-day unit of
payment.

[[Page 55364]]

Comment: Commenters stated that relying on a simulation of payments
under the pre-PDGM payment system establishes a budget neutrality
target that places an artificial limit on current PDGM payments.
Response: We finalized the methodology for estimating payments
under the PDGM and simulated 60-day periods in the pre-PDGM system in
the CY 2023 final rule (87 FR 66804). While it is unclear why the
commenter states repricing establishes a budget neutrality target that
places an artificial limit on current PDGM payments, we would like to
remind commenters that repricing compares expenditures paid under the
PDGM and pre-PDGM systems to determine if we are paying more under the
PDGM than we otherwise would have absent the new payment system (that
is, the 153-group system). Then if it is determined that we are paying
more under the PDGM then we determine what the recalculated PDGM budget
neutral payment rate for the claims year would be. Regardless of the
magnitude and frequency of individual behavior change (for example,
changes in LUPAs, therapy, etc.), the occurrence of any behavior change
is captured by the methodology to determine the impact on aggregate
expenditures. The methodology does not cap or limit the increase of
expenditures in a given year as it uses the actual utilization for that
year to reprice claims. Meaning, if utilization goes up from one year
to another, expenditures in turn increase as well, so we disagree with
commenters that state we are limiting PDGM payments as the expenditures
are directly tied to the services that providers are, or are not,
providing.
(4) Suggested Change in Timeframe for Behavior Change Adjustments
Comment: Several commenters suggested that the behavior change
observed after CY 2021 is no longer related to the implementation of
the PDGM and change in the unit of payment and that we stop the
adjustments after this timeframe. Commenters pointed out factors such
as differences in visit thresholds for assigning case-mix adjusted
claims as LUPAs between simulated 60-day episodes and actual 30-day
periods, bias in timing assignment for episodes, potential bias in
clinical group assignments for acuity, mapping limitations for
assumptions cross-walking OASIS-E to OASIS-D responses for missing
OASIS items, and overall mismatch of patterns between 2019 60-day
episodes and simulated 60-day episodes, such as therapy thresholds.
Commenters reminded CMS that the law requires that any permanent or
temporary payment adjustment be related to only the impact of
differences between assumed behavior changes and actual behavior
changes on estimated aggregate expenditures that could occur as a
result of the implementation of the new case-mix system and change in
the unit of payment. Commenters mentioned additional changes that
influenced behavior change beyond the implementation of the PDGM:
application of the permanent adjustments reducing payments to a point
where providers had to make business decisions to ensure adequate
provision of services, recalibration and LUPA updates, introduction of
the OASIS-E in CY 2023, expansion of the HHVBP Model, and increased MA
penetration, among other things. Commenters stated that CMS should not
consider behavior change that could be unrelated to the implementation
of the PDGM when calculating the permanent and temporary adjustments,
as this would be counter to what the law requires. Commenters stated
that the exclusion of data from CY 2022 and beyond would result in the
need for a 1 percent increase to the 30-day payment rate in CY 2026 and
necessitate recalculating the temporary adjustment amounts for CYs 2020
and 2021 to offset the amount already collected in CY 2025 because the
base rate for 2025 was set too low. Similarly, other commenters
requested CMS pause the permanent adjustment this year until stable,
post-pandemic data can be evaluated. This commenter suggested this data
collection would begin in 2023.
Response: For the reasons described later in section, we agree with
commenters in part and will not finalize the proposed -4.059% permanent
payment adjustment based on the analysis in the proposed rule that
concluded a -4.059% permanent adjustment was necessary to account for
behavior changes from CY 2024 (based on the updated calculations
described previously in this final rule, the final calculation results
in a -4.162% reduction). We will instead finalize a -1.023 percent
permanent adjustment (see calculation in the final decision), which is
based only on changes in estimated aggregate expenditures that we
previously calculated for CYs 2020 through 2022 and finalized through
notice and comment in rulemaking for CY 2023 and 2024 (FR 87 66886 and
FR 88 77869).
In the CY 2026 proposed rule (90 FR 29119 through 29126), we
discussed various trends identified in monitoring changes related to
the PDGM using analysis of CY 2024 claims. We agree with commenters to
the extent that this data might suggest that there were large changes
at the start of the PDGM. These changes, that may indicate that HHAs
were adapting to the implementation of a new case-mix system, have
decreased in magnitude (90 FR 29121 through 29125) to the extent we
believe that the implementation of the PDGM is the reason for these
changes through CY 2022; however, as discussed by commenters, CMS
implemented policy changes in CYs 2023 through 2025 that could have
prompted behavior change not directly attributable to the PDGM.
CMS policy changes implemented in CYs 2023 through 2025 might make
it difficult to precisely distinguish the behavior changes related to
the extenuating factors such as those mentioned by commenters and those
behavior changes related to the implementation of the PDGM, based on
analysis included in the proposed rule. These policy changes include
recalibration of case-mix weights and LUPA visit thresholds finalized
in the CY 2023, 2024, and 2025 final rules; reassignment of certain
ICD-10-CM codes related to the PDGM clinical groups and comorbidity
groups in the CY 2023 final rule; finalizing permanent adjustments in
the CY 2023, 2024, and 2025 final rules; and the introduction of OASIS-
E in 2023 and finalized mapping of OASIS-E to OASIS-D in the CY 2025
final rule for calculating functional points for functional impairment
levels during repricing; and the expanded HHVBP Model.
Because it is difficult to definitively isolate the behaviors
directly related to the PDGM implementation after CY 2022, we are only
finalizing a permanent adjustment based on data from CYs 2020 through
2022. As required by law, we will continue to analyze data through CY
2026 claims to determine if any additional permanent adjustments are
needed to account for the impact of assumed versus actual behavior
change related to the implementation of the PDGM and the change to a
30-day unit of payment on estimated aggregate expenditures. Further,
when analyzing the overall home health trends, such as the distribution
of 30-day periods of care by the twelve PDGM clinical groups,
distribution of 30-day periods of care by admission source and timing,
distribution of 30-day periods of care by functional impairment level,
distribution of 30-day periods with therapy and non-therapy visits, and
average therapy visits per 30-day period by clinical group (Tables 6,
8, 9, 10, and Figure 3 in 90 FR 29121 through 29125), we see indicators
that suggest provider

[[Page 55365]]

behavior changed more significantly in the years immediately following
the implementation of the PDGM, but has decreased in magnitude overall
starting in CY 2023.
We disagree with commenters to the extent they suggest that we
should not rely on data from CY 2022 but should only use CYs 2020-2021
claims for calculating the behavior adjustments. As noted previously
and as shown in the CY 2026 HH PPS proposed rule (90 FR 29119 through
29126), our analysis supports that the observed behavior changes in CYs
2020 through 2022 are attributable to the implementation of the PDGM
and the 30-day unit of payment. Therefore, since the observed behavior
change directly attributable to the implementation of the PDGM
transpired in CYs 2020 through 2022, and not CYs 2020 and 2021 as the
commenters suggest, we disagree with commenters that a 1 percent
increase in the 30-day payment rate in CY 2026 is warranted. We are
also recalculating the temporary adjustments for CYs 2023 and 2024 (see
Table 7). For those reasons, instead of the -4.059% adjustment we
proposed, we will finalize the -1.023% remaining adjustment for CY 2026
(see calculation in the final decision later in this section).
Comment: A commenter requested CMS adopt a phased approach to
implementing the temporary adjustment, moderating the annual impact to
providers, and requested CMS propose a timeframe for collecting the
temporary adjustment amount in order to allow providers to business
plan.
Response: We recognize the rationale for this commenter's request
and stated in the proposed rule that implementing both the permanent
and temporary adjustments in the same year may be burdensome to HHAs,
hence why we proposed only to implement a smaller temporary adjustment
(rather than the estimated 34 percent) along with the permanent
adjustment, which should lessen any hardship to HHAs, as well as reduce
larger temporary adjustments in future years. We did not propose that
the -5.0 percent temporary adjustment would be applied each year after
CY 2026, rather that we would continue to analyze the data each year
through CY 2026 claims as required by law, and in a time and manner
deemed appropriate we would propose one or more temporary adjustments
to account for retrospective overpayments. We will take into
consideration the suggestion to develop a timeframe for these
adjustments in order to create a more stable business planning
environment.
Comment: Commenters recommended that CMS also not make temporary
adjustments based on data from CY 2022 and beyond. Commenters describe
how the data is not appropriate for determining behavior change due to
PDGM versus other unrelated factors as summarized in the preceding
comment.
Response: We thank commenters for the recommendation and have
considered how to recalculate the temporary adjustments based on the
various reasons raised by the commenters. We agree that there have been
multiple other factors that likely have affected changes in provider
behavior, separate and distinct from the implementation of the PDGM and
the change to a 30-day unit of payment in CY 2020. As discussed in this
final rule, we believe that the majority of change in response to the
PDGM and the change to a 30-day unit of payment occurred in CYs 2020
through -2022. As such, we have recalculated the temporary adjustment
amount using the inalized methodology for CYs 2020 through 2022 (see
Table 7).
Final Decision: As discussed in the comment/responses on the
permanent and temporary behavior adjustments, there are several factors
that make it difficult to determine changes resulting from the
implementation of PDGM and non-PDGM-related behaviors, such as the
recalibration of case-mix weights and LUPA visit thresholds and changes
in the distribution of 30-day periods by PDGM clinical groups, therapy
visits, admission source and timing, and functional impairment level
beginning in CY 2023. Additionally, we have observed a decrease in the
magnitude of these changes in our monitoring beginning in CY 2023. As
such, we are only finalizing the remaining permanent adjustment needed
to account for behavior change attributable to the implementation of
the PDGM calculated using only the claims experience for CYs 2020
through 2022.
Permanent Adjustment
Based on consideration of the public comments and reevaluation of
PDGM trends, we are finalizing for CY 2026 the following:
<bullet> We exercise the authority expressly delegated under the
statute to apply permanent adjustments ``at a time and in a manner
appropriate'' to apply the remaining permanent adjustment of -1.023
percent (see the following calculations) to account for behavior change
related to the implementation of the PDGM in CYs 2020 through 2022.
<bullet> We exercise the same authority not to apply any permanent
adjustment based on CY 2023 or 2024 data. In future rulemaking, we will
provide additional analysis on 2023 and 2024 data to support that
behavior changes in these years are attributable to factors beyond the
implementation of the PDGM and a 30-day unit of payment. However, we
will continue to annually analyze the data through CY 2026 claims, as
required by law, to determine if any additional permanent adjustments
would need to be made based on the impact of assumed versus actual
behavior change on estimated aggregate expenditures resulting from the
implementation of the PDGM and the 30-day unit of payment.
<bullet> The CY 2026 permanent adjustment is calculated using the
permanent adjustments already applied to the CYs 2023, 2024, and 2025
finalized payment rates and to determine the payment rate reduction
needed for CYs 2020 through 2022. These steps are summarized in the
following:
When calculating the payment rate reduction for CYs 2020 through
2022, we multiply the annual permanent adjustment factors calculated
for each of those years (accounting for -6.52 percent or 0.9348
finalized for CY 2020 claims, -1.42 percent or 0.9858 finalized for CY
2021 claims, and -1.767 percent or 0.9823 finalized for CY 2022 claims)
which is approximately a cumulative payment rate reduction of -9.480
percent or 0.9052 needed to account for behavior change and the
difference in aggregate expenditures for CYs 2020 through 2022.

Total Permanent Adjustment needed for CYs 2020 through 2022 = 0.9348 x
0.9858 x 0.9823 = 0.9052

We determine what payment rate reduction is needed through a
permanent payment adjustment, by dividing the payment rate reduction
needed for CYs 2020 through 2022 by the cumulative payment rate
reduction already applied from the permanent adjustments implemented in
prior final rules. When calculating the cumulative payment reduction
applied, we account for the -3.925 percent or 0.96075 applied in CY
2023 final rule, -2.890 percent or 0.97110 applied in CY 2024 final
rule, and -1.975 percent or 0.98025 applied in CY 2025 final rule, to
calculate the cumulative permanent payment adjustment applied to be
0.91456. When we divide 0.9052 (payment rate reduction needed for CY
2020 through 2022) by 0.91456 (payment rate reduction applied in CYs
2023 through 2025 final rules), we determine that -1.023 percent or
0.9898 needs to be applied as a permanent adjustment to the CY 2026 30-
day payment rate and to reach the payment rate reduction needed for CYs
2020 through 2022.

[[Page 55366]]

Total Permanent Adjustment applied in CYs 2023 through 2025 = 0.96075 x
0.97110 x 0.98025 = 0.91456
Total Permanent Adjustment [to be applied] for CY 2026 = 0.9052/0.91456
= 0.98977
1-0.98977 = 1.023 percent

We determine that a permanent adjustment of -1.023 percent applied
to CY 2026 30-day payment rate is needed to account for behavior change
for CYs 2020 through 2022 based on the repricing methodology finalized
in the CY 2023 final rule. Therefore, we are finalizing a -1.023
percent permanent adjustment to the CY 2026 30-day payment rate.
We note that the law requires us to annually determine the impact
of differences between assumed behavior changes and actual behavior
changes on estimated aggregate expenditures through CY 2026 claims.
That is, we will continue to apply the finalized methodology through CY
2026 claims. However, while the law requires us to continue to evaluate
the need for any additional permanent adjustments in future rulemaking,
we reiterate that any additional permanent adjustment(s) would be
related to actual behavior change resulting only from the
implementation of the PDGM and the change in the unit of payment as
required by law.
Though we are calculating and only finalizing the remaining
permanent adjustment for CYs 2020-2022 in this final rule, we may still
see an accrual in the temporary adjustment dollar amount. In other
words, while the permanent adjustment accounts for the prospective
payment amount needed to prevent future overpayments, the temporary
adjustment will account for the prior overpayment and difference
between expenditures for actual and recalculated budget neutral payment
rates.
Temporary Adjustment
Finalizing applying a permanent adjustment of -1.023 percent to CY
2026 for CYs 2020 through 2022 means we need to reconcile the
difference between the finalized budget neutral rate and the new budget
neutral rate for CY 2023 to calculate the new temporary adjustment
dollar amounts. In the CY 2025 final rule, we compared the difference
in the actual CY 2023 payment rate of $2,010.69 and the PDGM budget
neutral rate of $1,875.46. Since we are finalizing a permanent
adjustment of -1.023 percent to account for behavior change in CYs 2020
through 2022 claims, this means, the recalculated budget neutral rate
for CY 2023 should be $1,894.43. We determined what the budget neutral
rate for CY 2023 should be by adjusting what the actual CY 2023
finalized payment rate was and accounting for the permanent adjustment
already applied to the CY 2023 payment rate and the remainder needed to
apply to CY 2023 for the payment rate reduction needed for CYs 2020
through 2022.

$2,010.69 x (1-(1-0.9052/0.96075) = $1,894.43

For the recalculated budget neutral CY 2024 payment rate, we update
the CY 2023 recalculated budget neutral payment rate by applying the CY
2024 case-mix weights recalibration neutrality factor (1.0124), the CY
2024 wage index budget neutrality factor (1.0012), the CY 2024 labor-
related share budget neutrality factor (0.9998), and the CY 2024 home
health payment update factor (1.030). We determined the recalculated
budget neutral CY 2024 base payment rate would have been $1,977.43.

$1,894.43 x (1.0124) x (1.0012) x (0.9998) x (1.030) = $1,977.43

Using the recalculated budget neutral payment rates for CY 2023
and 2024, we determine the new temporary adjustments for those two
years by comparing what the difference in aggregate expenditures would
have been for those two years when comparing expenditures with the
actual payments and estimated expenditures with payments under the
recalculated budget neutral payment rate. We present the new temporary
adjustments for CY 2023 and 2024 in Table 7.
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In this final rule, we exercise our authority under section
1895(b)(3)(D)(iii) of the Act to apply ``one or more'' temporary
adjustments to begin recoupment of the retrospective overpayments for
CYs 2020 through 2024. However, we have considered commenters' concerns
about the magnitude of a -5.0 percent temporary adjustment in tandem
with any finalized permanent adjustment. As such, we are finalizing
implementing a 3.0 percent reduction in CY 2026, that is equivalent to
a 0.9700 temporary adjustment factor, to the CY 2026 national, 30-day
payment rate. By implementing a -3.0 percent temporary adjustment, we
can begin recoupment of retrospective overpayments. We determined that
the total temporary adjustment dollar amount is approximately $4.7
billion through CY 2024 and that implementing a -3.0 percent temporary
adjustment may allow us to recoup $471 million of this total dollar
amount. We estimate we will be able to recoup $471 million if CY 2026
claims have approximately 7.7 million case-mix adjusted 30-day periods.
Any additional temporary adjustments needed to recoup the total
temporary adjustment will be discussed in future rulemaking. Also, in
response to comments, we will consider a schedule for the temporary
adjustment in future rulemaking as well.
We will continue with our monitoring of the trends in home health
utilization, including the number of visits, diagnosis reporting, and
other data that we present in our monitoring section to analyze
behavior changes that are and are not related to the implementation of
the PDGM and the 30-day unit of payment. We will present this analysis
in future rulemaking along with our calculations of the impact of the
difference between assumed versus actual behavior change on estimated
aggregate expenditures to ensure that any potential future adjustments
would be the result of the implementation of the PDGM and the 30-day
unit of payment.

D. CY 2026 Home Health Low Utilization Payment Adjustment (LUPA)
Thresholds, Functional Impairment Levels, Comorbidity Sub-Groups, and
Case-Mix Weights

1. Final CY 2026 PDGM LUPA Thresholds
Under the HH PPS, LUPAs are paid when a certain visit threshold for
a payment group during a 30-day period of care is not met. In the CY
2019 HH PPS final rule with comment period (83 FR 56492), we finalized
a policy setting the LUPA thresholds at the 10th percentile of visits
or two visits, whichever is higher, for each PDGM payment group. This
means the LUPA threshold for each 30-day period of care varies
depending on the PDGM payment group to which it is assigned. If the
LUPA threshold for the payment group is met under the PDGM, the 30-day
period of care will be paid the full 30-day period case-mix adjusted
payment amount (subject to any partial payment adjustment or outlier
adjustments). If a 30-day period of care does not meet the PDGM LUPA
visit threshold, then payment will be made using the per-visit payment
amounts as described in

[[Page 55368]]

section II.E.4.c. of this final rule. For example, if the LUPA visit
threshold is four, and a 30-day period of care has four or more visits,
it is paid the full 30-day period payment amount; if the period of care
has three or fewer visits, payment is made using the per-visit payment
amounts.
In the CY 2019 HH PPS final rule with comment period (83 FR 56492),
we finalized our policy that the LUPA thresholds for each PDGM payment
group will be reevaluated every year based on the most current
utilization data available at the time of rulemaking. However, as CY
2020 was the first year of the new case-mix adjustment methodology, we
stated in the CY 2021 HH PPS final rule (85 FR 70305 and 70306) that we
will maintain the LUPA thresholds that were finalized and shown in
table 17 of the CY 2020 HH PPS final rule with comment period (84 FR
60522) for CY 2021 payment purposes. We stated at that time, we did not
have sufficient CY 2020 data to reevaluate the LUPA thresholds for CY
2021.
In the CY 2022 HH PPS final rule with comment period (86 FR 62249),
we finalized the proposal to recalibrate the PDGM case-mix weights,
functional impairment levels, and comorbidity subgroups while
maintaining the LUPA thresholds for CY 2022. We stated that because
there are several factors that contribute to how the case-mix weight is
set for a particular case-mix group (such as the number of visits,
length of visits, types of disciplines providing visits, and non-
routine supplies) and the case-mix weight is derived by comparing the
average resource use for the case-mix group relative to the average
resource use across all groups, we believe the COVID-19 PHE would have
impacted utilization within all case-mix groups similarly. Therefore,
the impact of any reduction in resource use caused by the PHE on the
calculation of the case-mix weight will be minimized since the impact
will be accounted for both in the numerator and denominator of the
formula used to calculate the case-mix weight. However, in contrast,
the LUPA thresholds are based on the number of overall visits in a
particular case-mix group (the threshold is the 10th percentile of
visits or 2 visits, whichever is greater) instead of a relative value
(like what is used to generate the case-mix weight) that will control
for the impacts of the COVID-19 PHE. We noted that visit patterns and
some of the decrease in overall visits in CY 2020 may not be
representative of visit patterns in CY 2022. Therefore, to mitigate any
potential future and significant short-term variability in the LUPA
thresholds due to the COVID-19 PHE, we finalized the proposal to
maintain the LUPA thresholds finalized and displayed in table 17 in the
CY 2020 HH PPS final rule with comment period (84 FR 60522) for CY 2022
payment purposes.
For CY 2024, we proposed to update the LUPA thresholds using CY
2022 Medicare home health claims (as of March 17, 2023) linked to OASIS
assessment data. We believed that CY 2022 data would have been more
indicative of visit patterns in CY 2024 rather than continuing to use
the LUPA thresholds derived from the CY 2018 data pre-PDGM. Therefore,
we finalized a policy to update the LUPA thresholds for CY 2024 using
data from CY 2022.
For CY 2025, we proposed to update the LUPA thresholds using CY
2023 home health claims utilization data (as of March 19, 2024), in
accordance with our policy to annually recalibrate the case-mix weights
and update the LUPA thresholds, functional impairment levels and
comorbidity subgroups. Therefore, we finalized the functional points
and functional impairment level updates for CY 2025 as proposed, using
updated CY 2023 claims data (as of July 11, 2024).
For CY 2026, we proposed to update the LUPA thresholds using CY
2024 home health claims utilization data (using more complete CY 2024
claims data as of July 11, 2025), in accordance with our policy to
annually recalibrate the case-mix weights and update the LUPA
thresholds, functional impairment levels, and comorbidity subgroups.
After reviewing the CY 2024 home health claims utilization data, we
determined that LUPA visit patterns in 2024 were similar to visits in
2023 and a total of 18 case-mix groups have a decline in their LUPA
threshold of a single visit. The proposed LUPA thresholds for the CY
2026 PDGM payment groups with the corresponding Health Insurance
Prospective Payment System (HIPPS) codes and the case-mix weights can
be found in the CY 2026 HH PPS proposed rule (90 FR 29145).
We solicited public comment on the proposed updates to the LUPA
thresholds for CY 2026. The following is a summary of the comments we
received and our responses:
Comment: The majority of the commenters expressed support for the
proposed updates to the LUPA thresholds and recognized that these
updates are necessary to help align payments more closely with evolving
care delivery and improve payment accuracy. However, multiple
commenters expressed concern that ongoing upward adjustments to some of
the LUPA thresholds seem to be arbitrary and not fully supported by
clinical evidence. As such, these commenters recommended that the LUPA
thresholds remain static or clinically justified, and that there be an
established monitoring system that is able to identify providers with
abnormally low LUPA rates in an effort to ensure care delivery reflects
medical appropriateness rather than potential payment manipulation.
Response: We thank the commenters for their feedback and their
support for the annual update of the LUPA thresholds. Our policy is
that the LUPA thresholds for each PDGM payment group will be
reevaluated every year based on the most current utilization data
available at the time of rulemaking. While the visit patterns and
utilization data do not constitute clinical evidence, we note that the
LUPA thresholds are annually updated to correspond with the visit
patterns associated with each home health resource group, which we do
monitor and include in the rule. More specifically, the visit patterns/
utilization data serve as the most accurate method to update the LUPA
thresholds, as the LUPA rates correspond to provider behavior that
correlates with the visit patterns/utilization data as opposed to
clinical standards. We could consider a separate monitoring system for
those providers who have abnormally low LUPA rates in future
rulemaking. However, this could potentially require collaboration on
potential program integrity efforts. We also note that low LUPA rates
do not necessarily mean that a provider is acting inappropriately. We
believe updating the LUPA thresholds is the most accurate way to
reflect the provision of home health visits based on the most current
utilization data available at the time of rulemaking.
Final Decision: We are finalizing the proposal to update the LUPA
thresholds for CY 2026 using CY 2024 claims data (as of July 11, 2025).
The final LUPA thresholds for the CY 2026 PDGM payment groups with the
corresponding Health Insurance Prospective Payment System (HIPPS) codes
and the case-mix weights are listed in table 8 and are also available
on the HHA Center web page, located at <a href="https://www.cms.gov/medicare/enrollment-renewal/providers-suppliers/home-health-agency-center">https://www.cms.gov/medicare/enrollment-renewal/providers-suppliers/home-health-agency-center</a>.
2. Final CY 2026 Functional Impairment Levels
Under the PDGM, the functional impairment level is determined by
responses to certain OASIS items associated with activities of daily
living

[[Page 55369]]

and risk of hospitalization; that is, responses to OASIS items M1800-
M1860 and M1033. A home health period of care receives points based on
each of the responses associated with these functional OASIS items,
which are then converted into a table of points corresponding to
increased resource use. The sum of all these points results in a
functional impairment score which is used to group home health periods
into a functional level with similar resource use. That is, the higher
the points, the more the response is associated with increased resource
use, or increased impairment. The three functional impairment levels of
low, medium, and high were designed so that approximately one-third of
home health periods from each clinical group falls within each level.
This means home health periods in the low impairment level have
responses for the functional OASIS items that are associated with the
lowest resource use, on average. Home health periods in the high
impairment level have responses for the functional OASIS items that are
associated with the highest resource use on average.
For CY 2026, we proposed to use CY 2024 claims data to update the
functional points and functional impairment levels by clinical group.
The CY 2018 HH PPS proposed rule (82 FR 35320) and the technical report
from December 2016, posted on the Home Health PPS Archive web page,
located at <a href="https://www.cms.gov/medicare/home-health-pps/home-health-pps-archive">https://www.cms.gov/medicare/home-health-pps/home-health-pps-archive</a>, provides a more detailed explanation as to the
construction of the functional impairment levels using the OASIS items.
We proposed to use the same methodology previously finalized to update
the functional impairment levels for CY 2026. The final updated OASIS
functional points table and the table of functional impairment levels
by clinical group for CY 2026 are listed in tables 8 and 9,
respectively.
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BILLING CODE 4120-01-C
We solicited public comment on the proposed updates to the
functional points and the thresholds for functional impairment levels
by clinical group. The following is a summary of the comments we
received and our responses:
Comment: Several commenters opposed the proposed updates to the CY
2026 functional impairment points and levels. These commenters
described the proposed changes to functional impairment scoring as
arbitrary, nontransparent, and reflecting changes that are not aligned
with actual patient characteristics. Several of these commenters cited
that high acuity patients (providing examples such as beneficiaries
with multiple sclerosis) will require constant supervision and are
misclassified into low functional levels, which ultimately results in
underpayment. Some commenters objected to the division of patients into
evenly distributed impairment categories and stated that this approach
does not reflect the increasing acuity of all functional levels. Some
commenters also questioned whether CMS uses discharge assessments
instead of the Start of Care (SOC) OASIS items, which they state leads
to potentially misrepresenting resource needs. Some commenters also
emphasized that they believe the point value changes in OASIS scoring
devalues clinically

[[Page 55371]]

significant indicators including indicators such as ambulation or
therapy needs, leading to a risk in undermining access to medically
necessary services. As such, these commenters suggested that CMS
provide greater transparency in methodology, reevaluate impairment
thresholds, and incorporate social determinants of health into the
scoring process to more accurately capture the complexities of home
health patients.
Response: We appreciate the commenters' feedback and
recommendations. We note that we proposed and finalized the methodology
which utilizes those OASIS items specifically related to functional
status, as well as the use of the start of care OASIS for calculating
the functional impairment level in the CY 2019 HH PPS final rule (83 FR
56454). At this time, we do not use OASIS items associated with social
determinants of health but could consider this in future rulemaking. We
use the follow-up OASIS near the time of recertification for the third
and fourth 30-day periods of care. This helps to ensure that the
functional impairment level is determined to correspond with expected
resource use. We do not use the discharge OASIS given the beneficiary
would no longer be receiving home health services. Still, we maintain
that annual recalibration is vital to ensuring the most accurate and
current assessment of the relationship between resource use and
functional points, functional impairment levels, comorbidities,
utilization thresholds, and case-mix weights. We contend that the use
of the most up-to-date data in revising functional impairment levels is
integral to ensure that all variables used in the case-mix adjustment
process align with the actual costs of delivering home health services.
Also, we note that the functional impairment levels are structured so
that approximately one-third of periods within each clinical group are
assigned to low, medium, and high categories, as this ensures that the
case-mix system appropriately reflects differences in functional
impairment. This classification of functional impairment has been a
fundamental component of the HH PPS since its implementation and
remains essential under the PDGM. Previously, the HH PPS grouped home
health episodes using functional scores based on functional OASIS items
with similar average resource use within the same functional level,
with approximately a third of episodes classified as low functional
score, a third of episodes classified as medium functional score, and a
third of episodes classified as high functional score. Likewise, the
PDGM groups home health periods of care using functional impairment
scores based on functional OASIS items with similar resource use and
have three levels of functional impairment severity: low, medium, and
high. However, the PDGM differs from the previous HH PPS functional
variable, in that the three functional impairment level thresholds in
the PDGM vary between the clinical groups. As such, the PDGM functional
impairment structure accounts for patient characteristics within each
clinical group that are associated with increased resource use due to
functional impairment. This ensures that payment is more accurately
aligned with patient characteristics, including beneficiaries who have
greater need with activities of daily living (ADLs) and who are more
functionally impaired. Updating the functional impairment levels based
on the most current OASIS and claims data ensures that the payment
system captures changes in functional impairment and the associated
increases in resource use. Regardless of whether patients entering home
health are more impaired due to shifts in the broader health care
system or any other influence, the functional levels capture the
relationship between functional status as indicated on the OASIS with
resource use captured on claims. While we acknowledge commenters'
concerns, we emphasize that the proposed recalibration is designed to
strengthen the alignment between payment and patient characteristics,
not to diminish access to medically necessary services. As such,
updating the functional levels would specifically capture any changes
in functional impairment and any changes in resource use associated
with ADLs.
Final Decision: We are finalizing the functional points and
functional impairment level updates for CY 2026 as proposed, using
updated CY 2024 claims data (as of July 11, 2025).
3. Final CY 2026 Comorbidity Subgroups
Thirty-day periods of care receive a comorbidity adjustment
category based on the presence of certain secondary diagnoses reported
on home health claims. These diagnoses are based on a home-health
specific list of clinically and statistically significant secondary
diagnosis subgroups with similar resource use, meaning the diagnoses
have at least as high as the median resource use and are reported in
more than 0.1 percent of 30-day periods of care. Home health 30-day
periods of care can receive a comorbidity adjustment under the
following circumstances:
<bullet<ls-thn-eq> High comorbidity adjustment: There are two or
more secondary diagnoses on the home health-specific comorbidity
subgroup interaction list that are associated with higher resource use
when both are reported together compared to when they are reported
separately. That is, the two diagnoses may interact with one another,
resulting in higher resource use.
<bullet<ls-thn-eq> Low comorbidity adjustment: There is a reported
secondary diagnosis on the home health-specific comorbidity subgroup
list that is associated with higher resource use.
<bullet<ls-thn-eq> No comorbidity adjustment: A 30-day period of
care receives no comorbidity adjustment if no secondary diagnoses exist
or do not meet the criteria for a low or high comorbidity adjustment.
In the CY 2019 HH PPS final rule with comment period (83 FR 56406),
we stated that we will continue to examine the relationship of reported
comorbidities on resource utilization and make the appropriate payment
refinements to help ensure that payment is in alignment with the actual
costs of providing care. For CY 2026, we proposed to use the same
methodology used to establish the comorbidity subgroups to update the
comorbidity subgroups using CY 2024 home health data with linked OASIS
data.
For CY 2026, we proposed to update the comorbidity subgroups to
include 20 low comorbidity adjustment subgroups and 100 high
comorbidity adjustment interaction subgroups. The proposed CY 2026 low
comorbidity adjustment subgroups and the high comorbidity adjustment
interaction subgroups including those diagnoses within each of these
comorbidity adjustments was included in the CY 2026 HH PPS proposed
rule (90 FR 29136).
We solicited comments on the proposed updates to the low
comorbidity adjustment subgroups and the high comorbidity adjustment
interactions for CY 2026. Using more updated claims data (as of July
11, 2025), for CY 2026 there are 20 low comorbidity subgroups, and 98
high comorbidity subgroups as shown in tables 10 and 11.
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The following is a summary of the comments we received and our
responses:
Comment: Commenters broadly expressed support for CMS's proposal
to implement the proposed low and high comorbidity adjustments using CY
2024 claims data. Commenters stated these adjustments would result in
more accurate payments, reflecting the resources required to
effectively manage patients with these conditions. Additionally,
commenters indicated that the proposed changes to the comorbidity
subgroups should reflect the actual costs of providing care.
Response: We thank commenters for their support.
Comment: A commenter expressed concern for the elimination of
certain diabetic subgroups and the removal of Endocrine 2 from the low
comorbidity list, citing that these actions may result in adverse
consequences for

[[Page 55379]]

beneficiaries that require intensive diabetes management. Another
commenter recommended that CMS expand subgroup coding logic to include
additional conditions such as rheumatic mitral and aortic valve
disease, diabetes with mononeuropathy, and cystitis. Several commenters
also raised concerns about inconsistencies with the high comorbidity
pairings specifically as it relates to instances in which certain
behavioral and circulatory conditions are paired with only one skin
subgroup, Skin 3 or Skin 4, despite comparable clinical risks. As such,
these commenters recommended CMS expand pairings to better capture
patient complexity and increase the alignment for current comorbidity
adjustments so that there is arguably a more adequate reflection to the
costs of patients with multiple chronic conditions in an effort to
reduce systematic underpayment and potential access barriers. One
commenter suggested refining the case-mix adjustment methodology,
particularly as it related to the admission source variable and
suggested that shifts from inpatient to outpatient and ambulatory
surgical center settings alter the distribution of clinical complexity
in ways not fully reflected in historical data.
Response: We appreciate commenters' review of the proposed
comorbidity subgroup refinements. As outlined in the CY 2020 final rule
with comment period (84 FR 60510) and further detailed in the technical
report Overview of the Home Health Groupings Model,\13\ the home health
specific comorbidity list is a result of principles of patient
assessment by providers, as well as the evaluation of body systems and
their associated diseases, conditions, and injuries, as this framework
was specifically used to develop the clinically relevant categories
that resultingly identify relationships that are tied to increased
resource usage. We also acknowledge commenters' concerns regarding the
elimination of certain diabetic subgroups and the removal of Endocrine
2 from the low comorbidity list. However, we remind commenters that
only the subgroups of diagnoses representing more than 0.1 percent of
periods of care, and demonstrating at least the median resource use,
will qualify for a low comorbidity adjustment. That said, the specific
subgroups, including rheumatic mitral and aortic valve disease,
diabetes with mononeuropathy, and cystitis, that do not meet these
statistical and utilization thresholds ultimately do not qualify for
inclusion in the payment adjustment, even if clinically complex. As a
result, this ensures that payment adjustments are based on demonstrated
cost patterns rather than clinical potential alone. In instances where
the data does not demonstrate the requisite frequency or resource use
associated with the condition, such diagnoses are not included in the
adjustment. For example, in response to concerns about behavioral and
circulatory conditions being paired with only one skin subgroup, Skin 3
or Skin 4, despite comparable clinical risks, we again want to remind
commenters that subgroup combinations are determined by observed
utilization and statistical significance. If specific conditions do not
meet the required thresholds in relation to particular ulcer types,
they are not included in those pairings. Finally, we acknowledge the
one commenter suggestion to refine the case-mix adjustment methodology,
particularly regarding the admission source variable. We will continue
to monitor these trends and assess whether refinements to the admission
source variable are warranted in future rulemaking to ensure that the
case-mix adjustment methodology remains accurate and responsive to
evolving patterns of care.
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\13\ <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health-pps/home-health-pps-archive">https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health-pps/home-health-pps-archive</a>.
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Final Decision: We are finalizing the updated comorbidity
adjustment subgroups and the high comorbidity adjustment interactions
using CY 2024 home health data. For CY 2026, the final updated
comorbidity adjustment subgroups include 20 low comorbidity adjustment
subgroups as identified in table 10 and 98 high comorbidity adjustment
interaction subgroups as identified in table 11. The final CY 2026 low
comorbidity adjustment subgroups and the high comorbidity adjustment
interaction subgroups including those diagnoses within each of these
comorbidity adjustments will also be posted on the HHA Center web page
at <a href="https://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center">https://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center</a>.
4. Final CY 2026 PDGM Case-Mix Weights
As finalized in the CY 2019 HH PPS final rule with comment period
(83 FR 56502), the PDGM places patients into meaningful payment
categories based on patient and other characteristics, such as timing,
admission source, clinical grouping using the reported principal
diagnosis, functional impairment level, and comorbid conditions. The
PDGM case-mix methodology results in 432 unique case-mix groups called
home health resource groups (HHRGs). We also finalized a policy in the
CY 2019 HH PPS final rule with comment period (83 FR 56515) to annually
recalibrate the PDGM case-mix weights using a fixed effects model with
the most recent and complete utilization data available at the time of
annual rulemaking. Annual recalibration of the PDGM case-mix weights
ensures that the case-mix weights reflect, as accurately as possible,
current home health resource use and changes in utilization patterns.
To generate the proposed recalibrated CY 2026 case-mix weights, we used
CY 2024 home health claims data with linked OASIS data (as of March 13,
2025). We included the proposed case-mix weights in table 25 of the
proposed rule (90 FR 29145). In this final rule, we update these case-
mix weights with claims data as of July 11, 2025, as shown in table 13.
These data are the most current and complete data available at the time
of this rulemaking.
The claims data provide visit-level data and data on whether non-
routine supplies (NRS) were provided during the period and the total
charges of NRS. We determine the case-mix weight for each of the 432
different PDGM payment groups by regressing resource use on a series of
indicator variables for each of the categories using a fixed effects
model as described in the following steps:
Step 1: Estimate a regression model to assign a functional
impairment level to each 30-day period. The regression model estimates
the relationship between a 30-day period's resource use and the
functional status and risk of hospitalization items included in the
PDGM, which are obtained from certain OASIS items. We refer readers to
table 25 of the proposed rule for further information on the OASIS
items used for the functional impairment level under the PDGM. We
measure resource use with the cost-per-minute + NRS approach that uses
information from 2022 home health cost reports. We use 2022 home health
cost report data because it is the most complete cost report data
available at the time of rulemaking. Other variables in the regression
model include the 30-day period's admission source, clinical group, and
30-day period timing. We also include home health agency level fixed
effects in the regression model. After estimating the regression model
using 30-day periods, we divide the coefficients that correspond to the
functional status and risk of hospitalization items by 10 and round to
the nearest whole number. Those

[[Page 55380]]

rounded numbers are used to compute a functional score for each 30-day
period by summing together the rounded numbers for the functional
status and risk of hospitalization items that are applicable to each
30-day period. Next, each 30-day period is assigned to a functional
impairment level (low, medium, or high) depending on the 30-day
period's total functional score. Each clinical group has a separate set
of functional thresholds used to assign 30-day periods into a low,
medium, or high functional impairment level. We set those thresholds so
that we assign roughly a third of 30-day periods within each clinical
group to each functional impairment level (low, medium, or high).
Step 2: A second regression model estimates the relationship
between a 30-day period's resource use and indicator variables for the
presence of any of the comorbidities and comorbidity interactions that
were originally examined for inclusion in the PDGM. Like the first
regression model, this model also includes home health agency level
fixed effects and includes control variables for each 30-day period's
admission source, clinical group, timing, and functional impairment
level. After we estimate the model, we assign comorbidities to the low
comorbidity adjustment if any comorbidities have a coefficient that is
statistically significant (p-value of 0.05 or less) and which have a
coefficient that is larger than the 50th percentile of positive and
statistically significant comorbidity coefficients. If two
comorbidities in the model and their interaction term have coefficients
that sum together to exceed $150 and the interaction term is
statistically significant (p-value of 0.05 or less), we assign the two
comorbidities together to the high comorbidity adjustment.
Step 3: After Step 2, each 30-day period is assigned to a clinical
group, admission source category, episode timing category, functional
impairment level, and comorbidity adjustment category. For each
combination of those variables (which represent the 432 different
payment groups that comprise the PDGM), we then calculate the 10th
percentile of visits across all 30-day periods within a particular
payment group. If a 30-day period's number of visits is less than the
10th percentile for their payment group, the 30-day period is
classified as a Low Utilization Payment Adjustment (LUPA). If a payment
group has a 10th percentile of visits that is less than two, we set the
LUPA threshold for that payment group to be equal to two. That means if
a 30-day period has one visit, it is classified as a LUPA and if it has
two or more visits, it is not classified as a LUPA.
Step 4: Take all non-LUPA 30-day periods and regress resource use
on the 30-day period's clinical group, admission source category,
episode timing category, functional impairment level, and comorbidity
adjustment category. The regression includes fixed effects at the level
of the home health agency. After we estimate the model, the model
coefficients are used to predict each 30-day period's resource use. To
create the case-mix weight for each 30-day period, the predicted
resource use is divided by the overall resource use of the 30-day
periods used to estimate the regression.
The case-mix weight is then used to adjust the base payment rate to
determine each 30-day period's payment. Table BBB shows the
coefficients of the payment regression used to generate the weights,
and the coefficients divided by average resource use.
BILLING CODE 4120-01-P

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The final updated case-mix weights for CY 2026 are listed in table
13 and will also be posted on the HHA Center web page \14\ upon display
of this final rule.
BILLING CODE 4120-01-P
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\14\ <a href="https://www.cms.gov/medicare/enrollment-renewal/providers-suppliers/home-health-agency-center">https://www.cms.gov/medicare/enrollment-renewal/providers-suppliers/home-health-agency-center</a>.
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BILLING CODE 4120-01-C
Changes to the PDGM case-mix weights are implemented in a budget
neutral manner by multiplying the CY 2026 national standardized 30-day
period payment rate by a case-mix budget neutrality factor. Typically,
the case-mix weight budget neutrality factor is also calculated using
the most recent, complete home health claims data available. For CY
2026, we will continue the practice of using the most recent complete
home health claims

[[Page 55399]]

data at the time of rulemaking, which is CY 2024 data. The case-mix
budget neutrality factor is calculated as the ratio of 30-day base
payment rates such that total payments when the CY 2026 PDGM case-mix
weights (developed using CY 2024 home health claims data) are applied
to CY 2024 utilization (claims) data are equal to total payments when
CY 2025 PDGM case-mix weights (developed using CY 2023 home health
claims data) are applied to CY 2024 utilization data. This produced a
proposed case-mix budget neutrality factor for CY 2026 of 1.0051.
We invited public comments on the CY 2026 proposed case-mix weights
and proposed case-mix weight budget neutrality factor. The following is
a summary of the comments we received and our responses:
Comment: Several commenters expressed support for the proposed
case-mix weights using the most current data available for
recalibration.
Response: We thank the commenters for their support.
Comment: Several commenters expressed concern over the proposed
recalibration of the PDGM case-mix weights, stating that they believe
this proposal relies on potentially fraudulent claims data (including
the data particularly from Los Angeles County, COVID-19 pandemic-era
anomalies and outdated assumptions) which may potentially reward
outlier behavior while penalizing providers that are compliant. A few
commenters suggested that weights should be frozen at CY 2020 levels
until potentially problematic claims (claims that have billing patterns
based on excessive recertification rates and abnormal use of high
reimbursement codes) are excluded. Several commenters also mentioned
that they believe CMS's methodology blends behavior assumptions with
recalibration, which ultimately results in ``double counting'' and
misclassification of provider behavior. Some commenters stated that
this methodology results in the current weights undervaluing high
acuity cases, including patients with heart failure, COPD, diabetes,
and complex postsurgical recovery, as well as the therapy related
groupings. Commenters further suggested that undervaluation has already
reduced access to therapy services, particularly for patients that
require intensive speech language, swallowing, or mobility
interventions. Commenters also posited that annual recalibration
creates volatility, complicates financial and operational planning, and
thus, requested that CMS increase transparency by publishing multiyear
comparative tables, impact simulations, and clearer explanations of
OASIS mapping assumptions. Some commenters cited that rising patient
acuity, operational expenses, and workforce shortages present
justifications for higher payment levels and thus stated that
recalibration should not be constrained by budget neutrality.
Commenters further stated that budget neutrality reallocates points in
ways that diminish the weight of important clinical factors (such as
ambulation, which potentially leads to adverse outcomes like increased
falls and hospitalizations). Other commenters noted that the combined
effect of recalibration and other adjustments contributes to
substantial year-to-year payment variances, which they state may
disproportionately disadvantage HHAs that are mainly serving medically
complex or rural populations.
Response: CMS appreciates commenters' feedback regarding the
proposed recalibration of the PDGM case-mix weights. While we
understand concerns about data integrity, behavior assumptions, and the
impact on high acuity patients, ultimately, we continue to believe that
annual recalibration is essential to ensure that weights reflect
current utilization patterns and patient characteristics. Recalibration
only considers patient characteristics and associated resource use to
ensure that the case-mix weights accurately reflect the types of
patients HHAs are servicing. The behavior adjustments only ensure that
Medicare is not paying any more under the PDGM than it would have under
the prior 153-group system.
If CMS were to prolong recalibration beyond an annual schedule,
this would not accurately reflect year-to-year changes in resource use
associated with patient characteristics. That said, for CY 2026, the
use of CY 2024 claims represents the most complete and current data
available. Also, as it relates to commenters' concerns regarding
fraudulent/anomalous claims, we would like to note that the
recalibration methodology finalized in the CY 2019 HH PPS rule (83 FR
56502) is applied nationally and is based on the aggregate relationship
between patient characteristics and observed resource use. Therefore,
any stated ``undervaluation'' would be the result of what is being
reported by HHAs. To add, program integrity issues are addressed
through separate oversight channels and do not alter the statutory
requirement for recalibrations to be implemented in a budget-neutral
manner, as required by section 1895(b)(3)(A)(i) of the Act. Finally, we
acknowledge that annual recalibration may contribute to year-to-year
variability, but the overarching intent is to align payments as closely
as possible with actual resource use as reported by HHAs. While we
understand commenters' concerns about HHAs serving mainly medically
complex or rural populations potentially being disproportionately
disadvantaged, the case-mix weights are universally applied to the
national, standardized 30-day payment rate. Nevertheless, CMS will
continue to evaluate ways to improve transparency while monitoring
broader system trends such as rising acuity, workforce shortages, and
operational costs.
Final Decision: We are finalizing the recalibrated case-mix
weights for CY 2026, updated with claims data as of July 11, 2025. We
did not receive any comments on the proposed case-mix weight budget
neutrality factor. Therefore, we are finalizing the proposal to
implement the changes to the PDGM case-mix weights in a budget neutral
manner by applying a case-mix budget neutrality factor to the CY 2026
national, standardized 30-day period payment rate. Using the most
updated data at the time of rulemaking, the final case-mix budget
neutrality factor for CY 2026 will be 1.0052.

E. CY 2026 Home Health Payment Rate Updates

1. Final CY 2026 Home Health Market Basket Update for HHAs
Section 1895(b)(3)(B) of the Act requires that the standard
prospective payment amounts for home health be increased by a factor
equal to the applicable home health market basket update for those HHAs
that submit quality data as required by the Secretary. In the CY 2024
HH PPS final rule (88 FR 77726), we finalized a rebasing of the home
health market basket to reflect 2021 cost report data. We also
finalized a policy for CY 2024 and subsequent years that the labor-
related share will be 74.9 percent, and the non-labor-related share
will be 25.1 percent. A detailed description of how we rebased the home
health market basket and labor-related share is available in the CY
2024 HH PPS final rule (88 FR 77726 through 77742).
In the CY 2015 HH PPS final rule (79 FR 38384), we finalized our
methodology for calculating and applying the productivity adjustment.
As we explained in that rule, section 1895(b)(3)(B)(vi) of the Act,
requires that, in CY 2015 (and in subsequent calendar years, except CY
2018 (under section 411(c) of the Medicare Access and CHIP
Reauthorization Act of 2015

[[Page 55400]]

(MACRA) (Pub. L. 114-10, enacted April 16, 2015)), the market basket
percentage under the HH PPS as described in section 1895(b)(3)(B) of
the Act be annually adjusted by changes in economy-wide productivity.
Section 1886(b)(3)(B)(xi)(II) of the Act defines the productivity
adjustment as equal to the 10-year moving average of change in annual
economy-wide private nonfarm business multifactor productivity (as
projected by the Secretary for the 10-year period ending with the
applicable fiscal year, calendar year, cost reporting period, or other
annual period). The Bureau of Labor Statistics (BLS) publishes the
official measures of productivity for the United States economy. We
note that previously, the productivity measure referenced in section
1886(b)(3)(B)(xi)(II) of the Act was published by BLS as private
nonfarm business multifactor productivity. Beginning with the November
18, 2021, release of productivity data, BLS replaced the term
``multifactor productivity'' with ``total factor productivity'' (TFP).
BLS noted that this is a change in terminology only and will not affect
the data or methodology. As a result of the BLS name change, the
productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the
Act is now published by BLS as ``private nonfarm business total factor
productivity''. We refer readers to <a href="https://www.bls.gov">https://www.bls.gov</a> for the BLS
historical published TFP data. A complete description of IHS Global
Inc.'s (IGI) TFP projection methodology is available on the CMS website
at <a href="https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information">https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information</a>.
The proposed home health market basket update for CY 2026 was based
on the estimated home health market basket percentage increase,
specified at section 1895(b)(3)(B)(iii) of the Act, of 3.2 percent
(based on IHS Global Inc.'s first quarter 2025 forecast with historical
data through fourth quarter 2024). The estimated CY 2026 proposed home
health market basket percentage increase of 3.2 percent was then
reduced by a productivity adjustment, in accordance with section
1895(b)(3)(B)(vi) of the Act. Based on IGI's first quarter 2025
forecast, the proposed productivity adjustment was estimated to be 0.8
percentage point for CY 2026. Therefore, the proposed CY 2026 home
health market basket update was 2.4 percent (3.2 percent market basket
percentage increase, reduced by a 0.8 percentage point productivity
adjustment). Furthermore, we proposed that if more recent data became
available (for example, a more recent estimate of the market basket
percentage increase and/or productivity adjustment), we would use such
data, if appropriate, to determine the final CY 2026 market basket
percentage increase and productivity adjustment in the final rule.
Section 1895(b)(3)(B)(v) of the Act requires that the home health
percentage update be decreased by 2 percentage points for those HHAs
that do not submit quality data as required by the Secretary. For HHAs
that do not submit the required quality data for CY 2026, the proposed
home health payment update percentage was 0.4 percent (2.4 percent
minus 2 percentage points).
We invited public comments on the proposed CY 2026 home health
market basket percentage increase and productivity adjustment. The
following is a summary of the comments received and our responses:
Comment: Multiple commenters stated that they support CMS' proposal
and application of the CY 2026 market basket update but expressed
concerns that the proposed market basket update of 3.2 percent for CY
2026 would fail to adequately address the inflationary pressures and
cost increases experienced by HHAs.
Commenters cited organization-specific experience and data
demonstrating that the proposed update does not align with the
increased cost of skilled care experienced by the home health industry,
particularly for labor costs amid continued recruitment challenges, and
stated that they believe it to be inconsistent with price trends
evidenced in Bureau of Labor Statistics (BLS) data. They emphasized
that it is critically important for the annual payment update to
accurately reflect price growth in the cost of care to ensure that
beneficiaries needing home health services have access to care and to
support the viability of this important Medicare benefit over time.
Multiple commenters noted that they expect actual inflation costs to
far exceed the proposed market basket update, creating a widening gap
between Medicare payments and the actual cost of providing home health
services.
Several commenters urged CMS to reassess the market basket
construction, forecasting methodology, whether the reliance on the
Employment Cost Index is capturing shifts to contract labor and other
changes to the home health workforce, and to consider methodological
refinements and greater transparency.
Response: We appreciate the comments regarding the proposed CY 2026
HH PPS market basket update and recognize the concerns raised about
inflationary pressures affecting HHAs. Section 1895(b)(3)(B) of the Act
requires that the standard prospective payment amounts be increased by
a factor equal to the applicable home health market basket update for
those HHAs that submit quality data as required by the Secretary. The
home health market basket is a fixed-weight, Laspeyres-type price
index, which measures the change in price, over time, of the same mix
of goods and services purchased in the base period. Any changes in the
quantity or mix of goods and services (such as shifts in the
occupational mix of the workforce) purchased over time relative to the
base period are appropriately not measured. The home health market
basket was last rebased to reflect a 2021 base year effective for CY
2024 (88 FR 77726).
We continue to believe that the home health market basket cost
weights accurately reflect the cost structure of HHAs, allowing for an
accurate estimate of the price pressures that HHAs will face in CY
2026. Since the home health market basket update is required to be set
prospectively, it relies on a mix of historical data for part of the
period for which the update is calculated and forecasted data for the
remainder. As a result, the market basket percentage increase reflects
expectations of trends, which may periodically differ from actual
experience due to unforeseen events and short-term volatility.
The forecasted data are provided by IHS Global Inc. (IGI), a
nationally recognized economic and financial forecasting firm with
which CMS contracts to forecast the components of the market baskets.
In the CY 2026 HH PPS proposed rule, we proposed that if more recent
data become available, we would use such data, if appropriate, to
derive the final CY 2026 home health market basket update for the final
rule.
In this final rule, we have incorporated the most recent historical
data and forecasts provided by IGI to capture the expected price and
wage pressures facing HHAs in CY 2026. The CY 2026 market basket update
in this final rule reflects historical data through the second quarter
of 2025 and forecasted data for the third quarter of 2025 through the
fourth quarter of 2026. Accordingly, the final CY 2026 market basket
update reflects an updated and revised outlook on the U.S. economy.
Based on IGI's third quarter 2025 forecast with historical data
through second quarter 2025 of the 2021-based home health market basket
percentage

[[Page 55401]]

increase for CY 2026 is 3.2 percent, reflecting forecasted compensation
price growth of 3.3 percent. We will continue to evaluate opportunities
to enhance transparency around the market basket and to assess whether
refinements to inputs or methods are warranted. Any changes deemed
necessary would be proposed through notice and comment rulemaking.
Comment: Several commenters noted that in every year from 2021
through 2024, actual inflation has outpaced the CMS market basket
adjustment for the home health industry. Commenters emphasized that CYs
2021 and 2022 alone represented a shortfall of over 5 percentage points
and, unless corrected, the forecast error compounds underpayments with
each successive year which could result in significant cumulative
underpayment by the year 2030.
Multiple commenters referenced the precedent for CMS to implement
forecast error corrections, noting that in the FY 2024 Skilled Nursing
Facility Prospective Payment System final rule CMS finalized a 3.6
percentage points market basket forecast error adjustment for SNFs.
They stated that the cumulative shortfall in the SNF updates, preceding
the implementation of the market basket forecast error adjustment, was
less than the shortfall experienced by home health providers over the
CY 2021-2022 period and noted that CMS subsequently finalized
additional forecast error adjustments for SNFs in FY 2025 and FY 2026.
Several commenters recommended that CMS exercise its authority to
implement a one-time market basket forecast error adjustment to
payments in CY 2026 to account for previous forecast errors in home
health market basket updates. They stated that this additional funding
would enable home health providers to recruit and retain staff and be
competitive in their local labor markets, while supporting improved
access to care.
Response: A forecast error for a market basket update is equal to
the actual market basket percentage increase for a given year less the
forecasted market basket percentage increase. Due to the uncertainty
regarding future price trends, forecast errors can be both positive and
negative, as has occurred since the implementation of the HH PPS.
We acknowledge that over most of the history of the HH PPS,
forecast errors have been smaller in magnitude, with the largest error
prior to 2021 being an over forecast of 1.2 percentage points in 2009.
As noted by commenters, more recently the home health market basket has
been under forecast, with the largest forecast errors occurring in 2021
and 2022. The cumulative forecast error since HH PPS inception (fiscal
year 2002 to CY 2024, excluding CY 2018 and CY 2020 when the market
basket update was statutorily mandated) is -0.1 percent. The recent
forecast errors were largely a function of uncertainty in the overall
economy and the health sector specifically due to the nature of the
COVID-19 PHE and the unforeseen rapidly accelerating inflationary
environment.
In contrast to the SNF PPS, there is currently no mechanism to
adjust for a market basket forecast error in the home health
prospective payment system. Any changes in this respect would require
careful consideration of the statutory and regulatory frameworks
specific to the HH PPS, and any changes deemed necessary would be
proposed through notice and comment rulemaking.
Comment: Numerous commenters opposed the proposed 0.8 percentage
point productivity adjustment for CY 2026, arguing that this adjustment
fails to account for home health-specific productivity factors.
Commenters noted that the proposed 2026 productivity adjustment of 0.8
percentage point is among the highest historically applied without
adequate justification or transparency and suggested that the 10-year
moving average used to determine the productivity adjustment may be
influenced by unprecedented pandemic-related fluctuations.
Several commenters expressed their belief that the productivity
adjustment methodology is fundamentally flawed when applied to
healthcare settings. One commenter cited that since 2014, the BLS'
estimate of the annual percentage change in the private nonfarm
business sector total factor productivity has ranged from -0.9 to 3.8,
while CMS's computed productivity adjustment ranged from 0 to 0.8
percentage point. Commenters highlighted that CMS has applied the
productivity adjustment exclusively to restrict increases in Medicare
payments, and that in the one year where productivity in the non-farm
business sector declined, CMS set the productivity adjustment to 0
rather than increasing payments.
Multiple commenters emphasized that industry-specific challenges
prevent hospitals and HHAs from achieving productivity improvements
consistent with the private nonfarm business sector. They stated that
the private nonfarm sector encompasses a broad range of industries,
some with stable and predictable production processes and outputs,
while healthcare providers operate in complex environments
characterized by unpredictable patient volumes, rising input costs,
varying patient acuity levels, and regulatory requirements. Therefore,
they posited that the use of the Total Factor Productivity (TFP)
adjustment holds healthcare providers to an unreasonable standard by
requiring that they mimic productivity gains obtained in industries
that operate very differently.
Numerous commenters noted their belief that the cumulative effect
of these reductions year over year, combined with the asymmetric
treatment of declines in economy-wide productivity, leads to an
increasing gap between payments and the cost of providing services,
leaving healthcare providers increasingly underfunded and ultimately
restricting the amount of care they can provide. Commenters suggested
CMS reconsider the use or magnitude of the productivity adjustment or
otherwise take these criticisms into account when considering decisions
that affect payment where flexibility is afforded.
Response: Section 1895(b)(3)(B)(vi) of the Act requires the
application of the productivity adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act to the HH PPS market basket increase
factor. As required by statute, the CY 2026 productivity adjustment is
derived based on the 10-year moving average growth in economy-wide
private nonfarm business TFP for the period ending in CY 2026. We
recognize the concerns of commenters regarding the appropriateness of
the productivity adjustment; however, we are required under section
1895(b)(3)(B)(vi) of the Act to apply the specific productivity
adjustment described here.
We have always made available on the CMS website the general method
for calculating the productivity adjustment. This includes providing a
link to the most recent BLS historical TFP data, which allows
interested parties to obtain historical TFP annual index levels for
1987 through 2024. We also provided the IGI projection model (<a href="https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/tfp_methodology.pdf">https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/tfp_methodology.pdf</a>), which
is used to derive annual TFP growth rates for 2025 and 2026. The annual
index level derived from this method is then interpolated to quarterly
levels, and the CY 2026 productivity adjustment is equal to the percent
change in the 40-quarter moving average projected level for the period
ending December 31,

[[Page 55402]]

2026, relative to the 40-quarter moving average projected level for the
period ending December 31, 2025. We believe our methodology for the
productivity adjustment is consistent with section
1886(b)(3)(B)(xi)(II) of the Act which states that the productivity
adjustment is equal to the 10-year moving average of changes in annual
economy-wide private nonfarm business multi-factor productivity (as
projected by the Secretary for the 10-year period ending with the
applicable fiscal year, year, cost reporting period, or other annual
period).
At the time of this final rule, the CY 2026 productivity adjustment
reflects BLS historical TFP data through 2024 (released on March 21,
2025) and IGI's forecasted TFP growth for 2025 and 2026. The average
annual growth rate of historical TFP published by BLS for 2017 through
2024 is currently 0.9 percent and IGI is projecting average TFP growth
of about 0.3 percent for 2025 and 2026 based on IGI's third-quarter
2025 forecast. Combining the historical and projected TFP data over the
entire 10-year time period results in a compound annual growth rate of
TFP of 0.8 percent for 2026. The productivity adjustment (based on the
10-year period ending with CY 2026) for the CY 2026 final rule is the
same as the CY 2026 proposed rule. The 0.8percent productivity
adjustment in the CY 2026 final rule is larger than the productivity
adjustment in prior final rules for CY 2023 and CY 2024 mainly due to
the incorporation of updated BLS historical data.
In response to commenters' concerns about the productivity
adjustment only being applied if it reduces the payment update, we note
that the productivity adjustment was established under the Affordable
Care Act with a specific policy intent to encourage efficiency
improvements in healthcare delivery by linking Medicare payment updates
to economy-wide productivity gains. The statutory language in section
1886(b)(3)(B)(xi)(II) of the Act requires that the Secretary reduce
(not increase) the market basket percentage increase by changes in
economy-wide productivity, therefore, only positive productivity
adjustments are applied.
Final Decision: Consistent with section 1895(b)(3)(B)(vi) of the
Act, and as outlined previously in section IV.B.1. of this final rule,
we are finalizing the home health payment update methodology. The
market basket percentage increase for CY 2026 for the HH PPS is based
on IGI's third quarter 2025 forecast of the home health market basket
percentage increase, which is estimated to be 3.2 percent. As outlined
earlier in this section, we are applying a 0.8 percentage point
productivity adjustment to the CY 2026 home health market basket
percentage increase. Therefore, the final CY 2026 home health market

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