Rule2026-22750
Calendar Year 2027 Home Health Prospective Payment System (HH PPS) Rate Update; Requirements for the HH Quality Reporting Program and the Expanded HH Value-Based Purchasing Model; Medicare Provider Enrollment, Durable Medical Equipment (DME), and DME, Prosthetics, Orthotics, and Supplies (DMEPOS) Policies
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 9, 2026
Effective
January 4, 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 discusses the behavior adjustments and finalizes a temporary behavior adjustment. It also finalizes the recalibrated case-mix weights and updated functional impairment levels; comorbidity subgroups; and low-utilization payment adjustment (LUPA) thresholds for CY 2027. Additionally, this final rule discusses and responds to comments on the provision of home health palliative care services and includes a summary of comments received on the request for information (RFI) on a home health specific wage index included in the proposed rule. This rule also finalizes changes to the Home Health Quality Reporting Program (HH QRP) and summarizes potential initiatives to improve alignment between the HH QRP and expanded Home Health Value- Based Purchasing (HHVBP) Model. Lastly, the rule clarifies the application of the DMEPOS face-to- face encounter requirements for the replacement of DMEPOS items; makes changes to the provider and supplier enrollment requirements; makes changes to implement a DME benefit expansion for infusion pumps and drugs; and discusses collection of information requirement changes regarding the DMEPOS Competitive Bidding Program (CBP) country of origin.
Full Text
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<title>Federal Register, Volume 91 Issue 215 (Monday, November 9, 2026)</title>
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[Federal Register Volume 91, Number 215 (Monday, November 9, 2026)]
[Rules and Regulations]
[Pages 72022-72173]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-22750]
[[Page 72021]]
Vol. 91
Monday,
No. 215
November 9, 2026
Part III
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 405, 410, et al.
Calendar Year 2027 Home Health Prospective Payment System (HH PPS) Rate
Update; Requirements for the HH Quality Reporting Program and the
Expanded HH Value-Based Purchasing Model; Medicare Provider Enrollment,
Durable Medical Equipment (DME), and DME, Prosthetics, Orthotics, and
Supplies (DMEPOS) Policies; Final Rule
Federal Register / Vol. 91 , No. 215 / Monday, November 9, 2026 /
Rules and Regulations
[[Page 72022]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 405, 410, 414, 422, 423, 424, 484, and 498
[CMS-1844-F]
RIN 0938-AV80
Calendar Year 2027 Home Health Prospective Payment System (HH
PPS) Rate Update; Requirements for the HH Quality Reporting Program and
the Expanded HH Value-Based Purchasing Model; Medicare Provider
Enrollment, Durable Medical Equipment (DME), and DME, Prosthetics,
Orthotics, and Supplies (DMEPOS) Policies
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 discusses the
behavior adjustments and finalizes a temporary behavior adjustment. It
also finalizes the recalibrated case-mix weights and updated functional
impairment levels; comorbidity subgroups; and low-utilization payment
adjustment (LUPA) thresholds for CY 2027. Additionally, this final rule
discusses and responds to comments on the provision of home health
palliative care services and includes a summary of comments received on
the request for information (RFI) on a home health specific wage index
included in the proposed rule.
This rule also finalizes changes to the Home Health Quality
Reporting Program (HH QRP) and summarizes potential initiatives to
improve alignment between the HH QRP and expanded Home Health Value-
Based Purchasing (HHVBP) Model.
Lastly, the rule clarifies the application of the DMEPOS face-to-
face encounter requirements for the replacement of DMEPOS items; makes
changes to the provider and supplier enrollment requirements; makes
changes to implement a DME benefit expansion for infusion pumps and
drugs; and discusses collection of information requirement changes
regarding the DMEPOS Competitive Bidding Program (CBP) country of
origin.
DATES: With the exception of the HH PPS and HH QRP provisions specified
in sections II. and III. of this final rule and the regulatory changes
at 42 CFR 484.245, these regulations are effective on January 4, 2026.
The HH PPS and HH QRP provisions specified in sections II. and III. of
this final rule and the regulatory changes at 42 CFR 484.245 are
effective January 1, 2027.
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"><span class="__cf_email__" data-cfemail="87cfe8eae2cfe2e6ebf3efd7e8ebeee4fec7e4eaf4a9efeff4a9e0e8f1">[email protected]</span></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#c2aaadafa7aaa7a3aeb6aab3b7a3aeabb6bbb3b7a7b1b6abadacb182a1afb1ecaaaab1eca5adb4"><span class="__cf_email__" data-cfemail="046c6b69616c616568706c757165686d707d75716177706d6b6a77446769772a6c6c772a636b72">[email protected]</span></a>.
For more information about the expanded Home Health Value-Based
Purchasing (HHVBP) Model, 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#6028283622301115051314090f0e1320030d134e0808134e070f16"><span class="__cf_email__" data-cfemail="f0b8b8a6b2a08185958384999f9e83b0939d83de989883de979f86">[email protected]</span></a>. Nancy Allert (410) 786-4317,
Jennifer Phillips (410) 786-1023, Olufemi Shodeke (410) 786-1649, Misty
Whitaker (410) 786-4975, for Durable Medical Equipment, Prosthetics,
Orthotics, and Supplies (DMEPOS) Encounter Requirements for Identical
Replacement Items. Frank Whelan (410) 786-1302, for Medicare provider
and supplier enrollment and DMEPOS accreditation.
For more information about the DME Benefit Expansion for Infusion
Pumps and Drugs, send your inquiry via email to <a href="/cdn-cgi/l/email-protection#7e3a333b2e312d3e1d130d5016160d50191108"><span class="__cf_email__" data-cfemail="a9ede4ecf9e6fae9cac4da87c1c1da87cec6df">[email protected]</span></a>.
Austin Gutowski, (410) 786-1643, for DME Competitive Bidding Program--
Country of Origin and Technical Corrections.
SUPPLEMENTARY INFORMATION:
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 2027 Medicare payment rates for
home health agencies (HHAs). In this final rule, we include an analysis
of home health utilization, as well as analysis of the difference
between assumed versus actual behavior change 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) case-mix adjustment methodology. This final rule
also discusses the permanent adjustments applied in previous years and
finalizes a temporary adjustment to the CY 2027 home health base
payment rate. In addition, this rule recalibrates the 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)(A)(i) and (b)(4)(B) of the Act for
30-day periods of care in CY 2027. This final rule updates the CY 2027
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 responds to comments received on the
discussion of the provision of palliative care services under the
Medicare home health benefit and summarizes public comments received on
the request for information (RFI) regarding the construction of a home
health specific wage index.
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. First, we summarize potential initiatives to
improve alignment between the HH QRP and expanded HHVBP Model. We also
finalize revisions to the HH QRP data submission deadlines beginning
with the CY 2027 HH QRP. We also revise the HH QRP OASIS and HHCAHPS
Annual Payment Update (APU) reporting timeframe to report a calendar
year of data (January 1 through December 31). We also finalize
revisions to the HH QRP OASIS and HHCAHPS Annual Payment Update (APU)
reporting timeframe to report a calendar year of data (January 1
through December 31). We finalize some revisions to regulatory text in
support of rule proposals and to improve digital transfer of
information during the reconsiderations process. Finally, we summarize
the public comments received in response to a Request for Information
(RFI) on future measure concepts for the HH QRP.
3. Expanded Home Health Value-Based Purchasing (HHVBP) Model
We did not propose any expanded HHVBP Model-specific policy changes
in the CY 2027 HH PPS proposed rule. However, we have included a brief
summary of the Model with context relevant to a potential alignment
between the HH QRP and the expanded HHVBP Model.
[[Page 72023]]
4. Durable Medical Equipment, Prosthetics, Orthotics, and Supplies
(DMEPOS) Encounter Requirements for Identical Replacement Items
We are finalizing clarifications regarding the application of the
DMEPOS face-to-face encounter requirements, as outlined in 42 CFR
410.38, and the related documentation necessary to support the
replacement of DMEPOS items. We do not believe it necessary to require
an additional in-depth beneficiary examination to ``gather[ ]
subjective and objective information associated with diagnosing,
treating, or managing a clinical condition for which the DMEPOS is
ordered'' for replacement items. Such information should be recorded
when the beneficiary is initially assessed and receives the item, and
the practitioner should only write replacement orders for beneficiaries
with an ongoing medical need for the item(s). Therefore, we are
finalizing our proposal that an additional face-to-face encounter
within the 6 months preceding an order/prescription for replacement of
a DMEPOS item will not be required per 42 CFR 410.38. We clarify that
for purposes of 42 CFR 410.38(d)(2), a ``replacement'' refers to the
provision of an item that replaces an item falling under the same
Healthcare Common Procedure Coding System (HCPCS) code; it does not
include those situations involving the provision of a different item,
for example, because of a change in medical condition.
5. Provider Enrollment and DMEPOS Accreditation
Consistent with section 1866(j) of the Act, we are finalizing a
number of Medicare provider enrollment provisions to strengthen and
clarify certain aspects of the provider enrollment process. These
include but are not limited to: (1) adding grounds for denying or
revoking 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 will assist in protecting the Trust Funds
and Medicare beneficiaries.
We also are finalizing several minor changes to our DMEPOS
accreditation provisions in Sec. 424.58, such as a timeframe by which
an accrediting organization must report suspected fraud, waste, and
abuse to CMS. We believe these changes will help improve the DMEPOS
accreditation program's efficiency.
6. Durable Medical Equipment (DME) Benefit Expansion for Infusion Pumps
and Drugs
We are finalizing changes to the Medicare Part B definition of DME
at 42 CFR 414.202 to implement amendments made to the definition of DME
at section 1861(n) of the Act by section 6222(a) of the Consolidated
Appropriations Act, 2026 (CAA, 2026), expanding the scope of the
benefit for DME to include certain external infusion pumps and
associated home infusion drugs or other associated supplies. The legal
authority for this final rule is provided by section 1861(n) of the
Act, as amended by section 6222(a) of the CAA, 2026, and section 1871
of the Act.
7. DMEPOS Competitive Bidding Program--Country of Origin
We discuss requesting to revise the DMEPOS Competitive Bidding
Program (CBP) information collection under Office of Management and
Budget (OMB) Control Number 0938-1408 (CMS-10744) to require DMEPOS CBP
contract suppliers to report the country of origin for the lead items
furnished during the contract's period of performance. This information
will allow beneficiaries and interested parties to learn where the
DMEPOS item originated, if interested.
8. DMEPOS Competitive Bidding Program--Technical Corrections
We discuss technical corrections that need to be made to Sec.
414.414(d) based on a regulations text error in the CY 2026 HH PPS
final rule.
B. Summary of the Provisions of the Final Rule
1. Home Health Prospective Payment System (HH PPS)
In section II.B.1. of this final rule, we discuss the permanent
behavior adjustment and finalize a temporary adjustment to the base
payment rate under the HH PPS.
In section II.C. of this final rule, we finalize the recalibrated
CY 2027 PDGM case-mix weights and updated low-utilization payment
adjustment (LUPA) thresholds, functional impairment levels, and
comorbidity adjustment subgroups.
In section II.D. of this final rule, we finalize updates to the
home health wage index. We also finalize updates to the CY 2027
national, standardized 30-day period payment rates and the CY 2027
national per-visit payment amounts by the home health payment update
percentage. Additionally, this rule finalizes the CY 2027 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.E. of this final rule, we discuss and respond to
comments on the provision of palliative care services under the
Medicare home health benefit.
In section II.F. of this final rule, we summarize comments received
on the request for information (RFI) on the construction of a home
health specific wage index.
2. Home Health Quality Reporting Program (HH QRP)
In section III.D. of this final rule, we summarize potential
initiatives to improve alignment between the HH QRP and expanded HHVBP
Model.
In section III.E. of this final rule, we are finalizing as proposed
to revise the HH QRP data submission deadlines beginning with the CY
2027 HH QRP.
We also are finalizing our proposed revisions to the HH QRP OASIS
and HHCAHPS Annual Payment Update (APU) reporting timeframe to report a
calendar year of data (January 1 through December 31). Additionally, we
are finalizing as proposed some revisions to regulatory text in support
of rule proposals or to improve digital transfer of information during
the reconsiderations process.
In section III.F. of this final rule, we discuss the public
comments received in response to our request for information (RFI) on
future measure concepts for the HH QRP.
3. Expanded Home Health Value Based Purchasing (HHVBP) Model
In section IV. of this final rule, we summarize the expanded HHVBP
Model with context relevant to a potential alignment between the HH QRP
and expanded HHVBP Model. We did not propose any expanded HHVBP Model-
specific changes in the CY 2027 HH PPS proposed rule.
4. DMEPOS Encounter Requirements for Identical Replacement Items
In section V.B. of this final rule, we are finalizing a
clarification that while an order would continue to be required for
replacement of DMEPOS items, a new face-to-face encounter would not
need to occur to support payment for these DMEPOS items.
5. Provider Enrollment and DMEPOS Accreditation
In section V.C. of this final rule, we discuss a number of
finalized Medicare
[[Page 72024]]
provider enrollment provisions designed to strengthen and clarify
certain aspects of the provider enrollment process. These include, but
are not limited to, the following:
<bullet> Adding grounds for denying or revoking 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> CMS can currently impose a reapplication bar of up to 10
years if the provider or supplier is denied enrollment for submitting
false or misleading information on or with their enrollment
application. (This means they cannot reapply to Medicare for up to 10
years.) We are expanding this to permit a reapplication bar regardless
of the denial reason.
We believe these revisions will help keep unqualified providers and
suppliers out of the Medicare program, which, in turn will prevent
improper Medicare payments to such parties.
We also are finalizing several minor changes to our DMEPOS
accreditation provisions in Sec. 424.58, such as a timeframe by which
an accrediting organization must report suspected fraud, waste, or
abuse to CMS. We believe these changes will help improve the DMEPOS
accreditation program's efficiency.
6. DME Benefit Expansion for Infusion Pumps and Drugs
In section V.D. of this final rule, we finalize a modification to
the definition of ``durable medical equipment'' at 42 CFR 414.202 to
implement section 6222(a) of the CAA, 2026 by providing that certain
external infusion pumps, associated home infusion drugs, or other
associated supplies are treated as meeting the ``appropriate for use in
the home'' requirement when specified statutory criteria are satisfied.
7. DMEPOS Competitive Bidding Program--Country of Origin
In sections V.E. and VI.B.5. of this final rule, we plan to request
a revision to the collection currently approved under OMB Control
Number 0938-1408 (CMS-10744) to collect from DMEPOS CBP contract
suppliers the country of origin for the lead items furnished during the
DMEPOS CBP contract's period of performance.
As done historically with the product information reported on Form
C by a DMEPOS CBP contract supplier, the reported country of origin
information would be populated in the Medicare Supplier Directory for
the contract supplier during the contract period of performance.
8. DMEPOS Competitive Bidding Program--Technical Corrections
In section V.F. of this final rule, we discuss the technical
corrections to the provisions at Sec. 414.414(d) regarding the covered
document review date that were finalized in the CY 2026 HH PPS final
rule.
BILLING CODE 4169-69-P
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BILLING CODE 4169-69-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
[[Page 72027]]
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
if 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.
[[Page 72028]]
[GRAPHIC] [TIFF OMITTED] TR09NO26.001
B. CY 2027 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 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,
[[Page 72029]]
such as changes in the provision of therapy and changes in functional
impairment levels, had also occurred. We also reminded readers that in
the CY 2020 HH PPS final rule with comment period (84 FR 60513), we
stated that we interpret actual behavior changes to encompass behavior
changes that were previously outlined as assumed by CMS, and other
behavior changes not identified at the time we established the budget-
neutral 30-day payment rate for CY 2020. In the CY 2023 HH PPS final
rule (87 FR 66796), we provided supporting evidence that indicated the
number of therapy visits declined in CYs 2020 and 2021, as well as a
slight decline in therapy visits beginning in CY 2019 after the
finalization of the removal of therapy thresholds, but prior to
implementation of the PDGM. In section II.B.1. of the CY 2025 HH PPS
proposed rule (89 FR 55318), our analysis continued to show the actual
30-day periods are similar overall to the simulated 30-day periods as
well as a continued decline in therapy visits, indicating that HHAs
changed their behavior to reduce therapy visits. Although the analysis
demonstrates evidence of individual behavior changes (for example, in
the volume of visits for LUPAs, therapy sessions, etc.), we use the
entirety of the behaviors to calculate estimated aggregate
expenditures. The law 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.
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. This subsection
of the CAA, 2023 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 complied with these requirements by
posting 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 occurred upon implementation of 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 detailed instructions for each step of
the calculation.
Under the prior 153-group system (and the first 3 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, OMB approved an updated version of the OASIS
instrument, OASIS-E, under OMB control number 0938-1279,\1\ on November
30, 2022, effective January 1, 2023. 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 2024 and CY 2025 HH PPS final rules
for further information about the methodology.
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\1\ The current expiration date for this information collection
request is December 31, 2027.
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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 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 30-day base payment rate. This percent change
is converted into an adjustment factor and applied 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 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 is applied 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 next 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
[[Page 72030]]
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 the CY
2026 HH PPS final rule (90 FR 55365 through 55367) for analysis of CY
2024 claims.
d. CY 2025 Final Claims Results
We stated in the CY 2026 HH PPS final rule (90 FR 55365) that we
were exercising our authority expressly delegated under the statute to
apply permanent adjustments ``at a time and in a manner appropriate''
not to apply any permanent adjustment for CY 2026 based on CY 2023 or
2024 data, as these years may contain data with behaviors attributable
to factors beyond the implementation of the PDGM and a 30-day unit of
payment. However, we also noted 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. 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 need to
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. Therefore, we will continue to compare estimated
aggregate expenditures under the PDGM and the 153-group payment system,
using the most recent complete home health claims data available at the
time of rulemaking, as required by section 1895(b)(3)(D)(i) of the Act.
The CY 2027 HH PPS final rule uses the complete CY 2025 data to
determine any permanent and temporary adjustments needed to the CY 2027
payment rate. However, while the claims data and the permanent and
temporary adjustments results are considered complete for CY 2027, any
adjustments to future payment rates may be subject to additional
considerations such as permanent adjustments taken in previous years.
The claims data used in rulemaking is released in the HH PPS LDS
file twice each year, one with the proposed and one with the final
rule. Accordingly, the HH PPS LDS file released with this final rule
includes two files: the actual CY 2025 30-day periods and the CY 2025
simulated 60-day episodes.
We remind readers that a data use agreement (DUA) is required to
purchase the CY 2027 final HH PPS LDS file using the CMS-R-0235A form
under OMB control number 0938-0734. Access would 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.\2\ In addition, the
final CY 2027 Home Health Descriptive Statistics from the LDS Files
spreadsheet is available on the HH PPS Regulations and Notices web
page,\3\ 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 2025 that
were used to determine the adjustments. The spreadsheet also provides
information such as the number of episodes and periods by case-mix
group, case-mix weights, and simulated payments.
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\2\ <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>.
\3\ <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 2025 Data To Determine the CY 2027
Permanent and Temporary Adjustments
To comply with Section 1895(b)(3)(D)(ii) of the Act, we are
required to annually analyze data from CY 2020 through CY 2026 and show
the calculations to illustrate how the aggregate expenditures differ
from actual and assumed behavior changes. We also continue to analyze
differences in aggregate expenditures and calculate what the budget
neutral rate would be to understand how the budget neutral rate differs
from the actual finalized payment rate for CY 2025. We then determine
whether the difference between the budget neutral rate and actual
finalized payment rate can be directly attributed to behavior from PDGM
implementation as discussed in CY 2026 HH PPS final rule.
Using the methodology finalized in the CY 2023 HH PPS final rule to
apply for all the years in which an adjustment is appropriate, we
continue to use actual CY 2025 30-day periods to determine what the
final 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. We provide tables 2 and 3 to illustrate
the same information displayed in prior rules to show the permanent
adjustment that would need to be applied if the comparison of the
aggregate expenditures was a result of behavior change due to the
implementation of the PDGM. However, similar to what was finalized in
the CY 2026 HH PPS final rule (90 FR 55364 through 55365), we believe
any behavior changes reflected in the final CY 2025 claims for this CY
2027 final rule are not directly attributable to the PDGM but other
confounding factors related to policy changes that began in CY 2023
(that is, continued recalibration of case-mix weights, a change to the
OASIS-E, and previous reductions to the home health payment rate). The
permanent adjustment calculated will be illustrative as part of our
analysis of CY 2025 claims; however, we did not propose to apply a
permanent adjustment to the CY 2027 payment rate, as discussed
previously. We provide table 4 as another illustrative example showing
a calculated permanent adjustment, using CY 2025 aggregate expenditures
if we were to determine that the behavior changes that occurred could
be directly attributed to the implementation of the PDGM.
Using the final CY 2025 dataset, we began with 8,382,176 30-day
periods of care and dropped 491,954 30-day periods of care that had a
claim occurrence code 50 date after October 31, 2025. We also excluded
847,742 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 61,147 30-day periods were
excluded. Additionally, we excluded 319,999 simulated 60-day episodes
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.
Using the final dataset for CY 2025 (6,661,334 actual 30-day
periods which made up the 3,917,201 simulated 60-day episodes) we
determined the estimated aggregate expenditures using the finalized CY
2025 HH PPS payment rate were lower than the actual estimated aggregate
expenditures under the PDGM HH PPS. 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 2025
[[Page 72031]]
and therefore, we determined the CY 2025 30-day base payment rate
should have been $1,959.08 based on actual behavior changes.
We determined that for CYs 2020 through CY 2022 a total of -9.480
percent permanent adjustment was needed (after accounting for the -
3.925 percent applied to the CY 2023 payment rate, the -2.890 percent
applied to the CY 2024 payment rate, and the -1.975 percent applied to
the CY 2025 payment rate). The CY 2026 permanent adjustment was
calculated using the permanent adjustments already applied to CYs 2023,
2024, and 2025 finalized payment rates and to reach the payment rate
reduction needed for CYs 2020 through 2022.
In order to determine behavior changes only applicable to CY 2025,
we simulated what the CY 2025 base payment rate would have been if the
-1.023 percent adjustment that we determined using CY 2024 claims had
been implemented and to compare PDGM claims with 153-group priced
claims using 60-day simulated episodes.
To do so, we started with the budget neutral CY 2024 base payment
of $1,914.73 generated by CY 2024 simulated 60-day episodes (as
published in the CY 2026 HH PPS final rule (90 FR 55366)) and applied
the CY 2025 case-mix weights recalibration neutrality factor (1.0039),
the CY 2025 wage index budget neutrality factor (0.9988), the CY 2024
labor-related share budget neutrality factor (1.0), and the CY 2025
home health payment update factor (1.027). We determined the CY 2025
base payment rate for assumed behavior would have been $1,971.73.
For the CY 2025 annual permanent adjustment, we calculated the
percent change between the two payment rates for only CY 2025. For the
CY 2025 annual temporary adjustment we calculated the difference in
aggregate expenditures in dollars for all CY 2025 PDGM 30-day claims
using the two payment rates. This difference is shown as the
retrospective dollar amount we would need to offset payment using one
or more temporary adjustments in future years. Our results for the CY
2025 annual (single year) permanent and temporary adjustment
calculations using CY 2025 final claims data are shown in table 2.
[GRAPHIC] [TIFF OMITTED] TR09NO26.002
Table 2 illustrates that a permanent prospective adjustment of -
0.642 percent to the CY 2027 30-day payment rate (assuming all
adjustments from prior years were applied) for CY 2025 would be
required to offset for such increases in estimated aggregate
expenditures. Again, table 2 is illustrative because we are continuing
to limit the calculation of the permanent adjustments to only include
data from CYs 2020 through 2022 as finalized in the CY 2026 HH PPS
final rule (90 FR 55365 through 55367) and the calculated permanent
adjustment does not include implemented permanent adjustments from
prior years. We reiterate that any additional permanent adjustment(s)
must be determined to 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.
f. CY 2027 Permanent Adjustment and Temporary Adjustment Calculations
In the preceding section we describe how we analyzed CY 2025 final
claims data to determine the effects of actual behavior change on
estimated aggregate expenditures. Again, that illustrative analysis
included simulations that assumed the full permanent adjustments were
already taken. We note that CMS implemented a payment adjustment of -
1.975 percent for the CY 2025 payment rate, rather than the -3.95
percent we calculated (89 FR 88373), so the calculations set forth
later in this section reflect the remaining adjustments that still
needed to be recognized.
Therefore, the calculation in this section includes any of the
remaining adjustments not applied in previous years (that is, CYs 2020
through 2024 claims data), as well as the adjustment needed to account
for CY 2025 claims. In calculating the full permanent adjustment needed
to the CY 2027 30-day payment rate, we compare estimated aggregate
expenditures under the PDGM and the prior system. Unlike the annual
adjustments described in
[[Page 72032]]
table 2, we do not assume we made the full adjustment from prior years.
This section also includes calculation of a permanent adjustment using
the actual CY 2025 payment rate and the budget neutral rate for CY 2025
using the method discussed in the CY 2026 HH PPS final rule.
As discussed in section II.B.1.e. of this final rule, using the
final dataset for CY 2025 (6,661,334 actual 30-day periods which made
up the 3,917,201 simulated 60-day episodes) we determined the CY 2025
30-day base payment rate should have been $1,959.08 based on actual
behavior. We then compared the repriced 30-day base payment rate based
on actual behavior to the CY 2025 30-day base payment rate of $2,057.35
we paid based on assumed behaviors. The percent change, as summarized
in table 3, between the actual CY 2025 base payment rate of $2,057.35
(based on assumed behaviors) and the CY 2025 recalculated base payment
rate of $1,959.08 (based on actual behaviors) illustrates the total
permanent adjustment that would reflect CY 2020 through CY 2025 claims.
We conduct this calculation to satisfy the requirements described in
section 1895(b)(3)(D)(ii) of the Act to illustrate what the permanent
adjustment would be. We consider table 3 illustrative because we are
limiting the calculation of the permanent adjustments to only include
data from CYs 2020 through 2022 as finalized in the CY 2026 HH PPS
final rule (90 FR 55365 through 55367).
[GRAPHIC] [TIFF OMITTED] TR09NO26.003
As shown in table 3, a permanent prospective adjustment of -4.777
percent to the CY 2027 30-day payment rate would be required to offset
for such increases in estimated aggregate expenditures. To illustrate
this calculation:
[GRAPHIC] [TIFF OMITTED] TR09NO26.004
As we stated in the CY 2026 HH PPS final rule (90 FR 55357),
applying a -1.975 percent (half of the proposed -3.95 percent)
permanent adjustment to the CY 2025 30-day payment rate would 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 2025 claims data, as shown in table 3, a permanent prospective
adjustment of -4.777 percent to the CY 2027 30-day payment rate would
offset for increases in estimated aggregate expenditures for CYs 2020
through 2025. We note that 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 illustrative CY 2027 permanent
adjustment, which would include estimated aggregate expenditures in CY
2025, by simply subtracting the -1.975 percent applied in CY 2025 and
the -1.023 percent applied in CY 2026 from the total permanent
adjustment of -4.777 percent as shown in table 3.
Instead, we account for the permanent adjustment applied in prior
years when we calculate the CY 2027 permanent adjustment by solving the
following equation
(1-0.01023) x (1-x) = (1-0.04777)
To illustrate this calculation we used the following approach.
[GRAPHIC] [TIFF OMITTED] TR09NO26.041
x = 1-0.96207
x = 0.03793 (that is, 3.793 percent)
We note that the -3.793 percent is calculated as a permanent
adjustment for CY 2027 illustrating what we would need if we were to
offset the difference in aggregate expenditures between CY 2025 claims
priced under the PDGM and the 153-group system and adjusting for the
permanent adjustments applied in prior years.
We continue to apply the methodology finalized in the CY 2026 HH
PPS final rule to determine what the permanent adjustment for CY 2025
claims would be even though we stopped comparing claims priced under
the PDGM and the 153-group after CY 2022 claims for the purposes of
applying a permanent adjustment in this final rule. As displayed in
table 4, we
[[Page 72033]]
calculate the permanent adjustment for CY 2025 by determining the
percent change between the actual CY 2025 30-day payment rate
($2,057.35) and the budget neutral rate for CY 2025 ($2,036.29). The
budget neutral rate for CY 2025 is the finalized CY 2024 budget neutral
rate discussed in CY 2026 final rule ($1,977.43) multiplied by the CY
2025 case-mix weights recalibration neutrality factor (1.0039), the CY
2025 wage index budget neutrality factor (0.9988), and the CY 2025 home
health payment update factor (1.027).
[GRAPHIC] [TIFF OMITTED] TR09NO26.005
In section II.C.1.d of CY 2027 HH PPS proposed rule, we discuss
various trends that are part of monitoring changes related to the PDGM
using analysis of CY 2025 claims. The data continues to show minimal
changes that could be attributed to the PDGM implementation after CY
2022 by a large proportion of home health providers. We also continue
to acknowledge the difficulty in attributing any behavior change
occurring from CYs 2023 through 2025 directly to the PDGM
implementation and its effects on expenditures from the other policy
changes occurring in those years. As discussed in the CY 2026 HH PPS
final rule, CMS introduced several policy changes that make isolating
the effect of implementing a permanent adjustment, with claims data
from CYs 2023 through 2025, for the PDGM difficult. These changes
include recalibration of case-mix weights and LUPA visit thresholds
finalized in the CY 2023, 2024, 2025, and 2026 final rules;
reassignment of certain ICD-10-CM codes related to the PDGM clinical
groups and comorbidity groups in the CY 2023 HH PPS final rule;
finalized permanent adjustments in the CY 2023, 2024, and 2025 HH PPS
final rules; the introduction of OASIS-E in 2023 and finalized mapping
of OASIS-E to OASIS-D in the CY 2025 HH PPS final rule for calculating
functional points for functional impairment levels during repricing;
and the expanded HHVBP Model. For these reasons, we maintain that
limiting the application of the permanent adjustment to analysis of
data from CYs 2020 through 2022 continues to be the most accurate
application of the law. However, 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.
The dollar amount that needs to be collected through the temporary
adjustment increased when examining home health claims from CY 2025
because those claims were paid using the actual 30-day payment rate
($2,057.35) instead of the calculated budget neutral payment rate for
CY 2025 ($2,036.29). That is, had the payment rate in CY 2025 been
$2,036.29, there would not be an increase in what needs to be collected
through the temporary adjustment when examining home health claims from
CY 2025. Because the 30-day payment rate was not budget neutral until
the CY 2026 payment rate with the application of the -1.023 percent
permanent adjustment, the temporary adjustment continued to accrue.
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 CY 2020 to CY 2026, we
calculate the temporary prospective adjustment 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 2026 HH PPS final rule (90 FR 55366 through
55367) for analysis of CY 2023 and CY 2024 claims, and section
II.C.1.d. of this final rule for the analysis of CY 2025 claims. Table
5 provides a summary of the temporary adjustment dollar amount for CYs
2020 through 2026.
[[Page 72034]]
[GRAPHIC] [TIFF OMITTED] TR09NO26.006
Therefore, we exercise our authority under section
1895(b)(3)(D)(iii) of the Act to apply ``one or more'' temporary
adjustments to continue recoupment of the retrospective overpayments
for CYs 2020 through 2025. Specifically, we proposed implementing a 3.0
percent reduction in CY 2027, that is equivalent to a 0.9700 temporary
adjustment factor, to the CY 2027 national, standardized payment rate.
Using historical trends, we estimated 7,680,775 30-day periods would
occur in CY 2027. Using this estimated utilization, a 3.0 percent
reduction to the CY 2027 30-day payment rate would begin to collect
approximately $500 million of the total temporary adjustment dollar
amount, equating to about 10 percent of the total $4.9 billion shown in
table 6. In doing so; however, we noted we would need to account for
the remaining temporary adjustment dollar amount for CYs 2020 through
2026, plus any possible adjustments for CY 2027 and 2028, in future
years. It is important to note that the estimated $500 million dollar
amount anticipated to be collected by the implementation of the
temporary adjustment factor is based on an estimate of the number of
30-day periods that would occur in CY 2027. 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 2027 differ from what was
estimated. In other words, as noted in the proposed rule, CMS will
calculate the actual amount collected from the temporary adjustment in
CY 2027 and credit it to the overall cumulative temporary dollar
amount.
In accordance with section 1895(b)(3)(D)(iii) of the Act, the
temporary adjustment is to be applied on a prospective basis and shall
apply only with respect to the year for which such temporary increase
or decrease is made. This means we would not include the -3.0 percent
temporary adjustment applied for CY 2027 when calculating the CY 2028
base payment rates. However, to continue recoupment of the
retrospective overpayments, we may propose additional temporary
adjustments in future rulemaking and did not propose that the -3.0
percent temporary adjustment would be applied each year after CY 2027.
Rather, as noted in the proposed rule, 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 will propose one or more temporary
adjustments to account for retrospective overpayments. We also note the
$4.9 billion does not account for any monies recouped in CY 2026, as we
do not have this dollar amount at the time of this CY 2027 rulemaking.
In future rulemaking, we will show the remaining balance, accounting
for the previous recoupment amount; however, there will be a lag. We
refer readers to section II.E.3.b. for the CY 2027 base payment rates
with and without the temporary adjustment.
We solicited comments on the proposals to not apply a permanent
adjustment and to apply the -3.0 percent temporary adjustment to the CY
2027 home health base payment rate. The following is a summary of the
comments we received and our responses.
Comment: One commenter, the Medicare Payment Advisory Commission
(MedPAC), supported the proposed temporary payment adjustment for CY
2027. MedPAC stated that although the proposed payment update is larger
than the Commission's recommendation for CY 2027, the proposed
temporary behavioral adjustment would further align Medicare payments
with providers' costs. They also stated that the home health base
payment rate currently exceeds the estimated cost of a typical 30-day
payment period by 34 percent.
Response: We thank MedPAC for their comment.
Comment: Several commenters recommended that CMS eliminate all
permanent and temporary adjustments due to methodological flaws and
data concerns, such as the inability to discern behavior related and
unrelated to the PDGM. These commenters also recommended excluding
anomalous data from areas with suspect billing patterns, similar to the
policy finalized in The Medicare Program: Mitigating the Impact of
Significant, Anomalous, and Highly Suspect Billing Activity on Medicare
Shared Savings Program (MSSP) Financial Calculations in Calendar Year
2023 final rule. Commenters also raised concerns about the anomalous
data having effects on
[[Page 72035]]
varying case-mix weights, outlier calculations, PEPs changes in LUPAs
and number of episodes.
Response: The methodological and data concerns raised by commenters
were addressed in the CY 2026 HH PPS final rule (90 FR 55360 through
55365). As required by law, our methodology (that is, the repricing
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.
When using the repricing methodology, we create simulated 60-day
episodes to reprice the claims for CYs 2020 through 2022 and use the
same claims data sets to calculate both pre-PDGM and PDGM payments.
Regardless of the magnitude and frequency of individual behavior
changes (for example, number of episodes, changes in LUPAs, therapy,
PEPs, visits, etc.), the occurrence of any behavior change is captured
by the methodology to determine the impact on aggregate expenditures.
Furthermore, not all anomalous billing patterns indicate fraudulent
practices, and we would need further evidence to determine which
providers with anomalous billing patterns could be connected to fraud
and abuse. Excluding data some commenters view as ``anomalous'' from
the calculation of the national 30-day base payment rate would require
CMS to develop a new policy, including developing thresholds for
determining deviations excluded from the analytical sample. Regarding
the suggestion from commenters on the policy under which CMS made
adjustments to Medicare Shared Savings Program (MSSP) financial
benchmark calculations to account for significant, anomalous, and
highly suspect billing activity in CY 2023 (89 FR 79156 through 79165),
we lack the same statutory authority to apply a similar policy for
setting the national standardized 30-day payment rate for HHAs as
required by section 1895(b)(3) of the Act. In finalizing this policy,
MSSP relied on statutory authority undersection 1899(d)(1)(B)(ii) of
the Act, which permits the Secretary to adjust benchmark expenditures
for beneficiary characteristics and such other factors as the Secretary
determines appropriate. MSSP relied on this authority to remove
payments for the specified catheter codes from the determination of
benchmark expenditures where CY 2023 serves as a benchmark year when
establishing benchmarks for ACOs in agreement periods beginning in
January 2024, January 2025, or January 2026. While we do not have
similar statutory authority for the HH PPS, CMS continues to
investigate anomalous providers and has made referrals to law
enforcement and terminated certain suppliers and providers from the
Medicare program. CMS also continues to work closely with the HHS-OIG
and Department of Justice, as well as our Unified Program Integrity
Contractors (UPIC), to investigate health care fraud activities.
Comment: Some commenters raised concerns regarding the way in which
CMS was meeting the statutory requirements of section 1895(b)(3)(D) of
the Act through the budget neutrality calculation methodology finalized
in CY 2023 HH PPS final rule. Specifically, commenters raised concerns
about repricing claims using simulated 60-day episodes stating that the
methodology does not meet the statutory requirement, including how
claims are excluded, structural LUPA differences between the pre-PDGM
system and the PDGM, outlier assumptions for simulated 60-day episodes,
and recalibrating pre-PDGM case-mix update factors. Commenters also
raised concerns that recalibration did not control for the impact of
COVID-19 and suggested these claims be excluded.
Response: The concerns raised by commenters were previously
discussed in the CY 2023 HH PPS final rule (87 FR 66797 through 66804)
and in the CY 2026 HH PPS final rule (90 FR 55362 through 55364). 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.
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.
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, and before January 1 of the claims
year we are analyzing, to ensure the 30-day period will not be part of
a simulated 60-day period that began in the prior year 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 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
immaterial 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 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.
Excluding claims with COVID-19 as a diagnosis lacks a clear
rationale. Simulated 60-day episodes with a primary diagnosis of COVID-
19 would still be assigned a HIPPS under the V8219 Home Health Grouper
and would not have been excluded from the repricing analysis unless
there was another unrelated issue with the claim that prevented
grouping. As described in the CY 2023 HH PPS final rule (87 FR 66800),
our methodology includes the effect of the COVID-19 public health
emergency (PHE) and ensures that any difference between the two
calculated spending amounts for estimated budget-neutral amount and
actual home health expenditures is not attributable to the PHE.
Recalibrating the pre-PDGM case-mix weights to reflect changes due
to the COVID-19 PHE would not increase the aggregate payments estimated
for simulated 60-day periods paid under the pre-PDGM case-mix system.
Because we are comparing a single year of data priced under the PDGM
and the 153-group case-mix system, the COVID-19 PHE would not bias the
PDGM
[[Page 72036]]
payments differently than the 153-group or vice-versa. Our methodology
ensured that we used actual claims with the same episodes, same
diagnoses, same therapy and non-therapy visit counts, same clinical
documentation, same LUPA patterns, all shaped by the COVID-19 PHE--and
ran them through two different payment calculations: (1) actual payment
under PDGM's case-mix methodology, and (2) a hypothetical repricing
under the prior 153-group system's case-mix methodology. Because both
calculations draw on the identical underlying utilization data, any
COVID-19 PHE-driven change in the volume or intensity of care (fewer
visits, shorter episodes, telehealth substitution, deferred admissions)
shows up in both the actual and the counterfactual payment amount. 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.
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 continue to believe that the COVID-
19 PHE would have impacted utilization within all case-mix groups
similarly. We acknowledge that the COVID-19 PHE changed the underlying
clinical picture in 2020 (more respiratory diagnoses, fewer therapy
visits, more skilled nursing visits, altered LUPA thresholds,
telehealth-driven changes in visit patterns, etc.). However the PHE
would have affected care patterns regardless of whether payment was
made under the 153-group system or the PDGM. However, the impact of the
COVID-19 PHE contributes to case-mix changes and changes in utilization
that will be reflected in the single year of claims that is priced as
the simulated 60-day episodes in our repricing methodology. When we
compare the aggregate expenditures between the two payment systems that
are similarly affected by the COVID-19 PHE, we determine the difference
in aggregate expenditures that can be attributed to the PDGM. In
addition, when we create the case-mix weight for each 30-day period
under PDGM, the predicted resource use is divided by the overall
resource use of the 30-day periods used to estimate the regression
model for recalibration. 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.
We previously explained the outlier assumptions for simulated 60-
day episodes in the CY 2026 HH PPS final rule (90 FR 55363). If we were
to implement an updated FDL instead of using the finalized CY 2020 FDL
to determine outlier payments under the simulated episodes, it is
unclear whether retrospectively assigning the necessary FDL to hit a
2.5 percent target for the years after CY 2020 would be an accurate
representation of what would happen under the previous payment system
as discussed previously in the CY 2026 HH PPS final rule (90 FR 55363).
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.
Comment: Some commenters reminded CMS of its legal responsibilities
under the Administrative Procedure Act to exercise informed decision-
making that includes public input and for the Agency to ensure that
consideration is given to data and perspectives that the Agency may not
have considered or overlooked. These same commenters referenced Loper
Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), which reinforced
the principle that courts must exercise independent judgment to ensure
Agency actions are lawful and within their statutory authority. These
commenters noted that Loper Bright shifted the focus away from
deference to Agency interpretations of statutes, and gaps in them, and
solidified the requirement for agencies to engage in reasoned decision
making, including considering and responding to public comments, as a
foundational aspect of the regulatory process. Using these legal
foundational principles, the commenters stated that their
recommendations regarding flaws in CMS's approach related to the
calculation of the permanent and temporary adjustments must be
addressed.
Response: CMS has responded, in this and prior HH PPS final rules
(for example, 90 FR 55342), to the substance of the commenters'
recurring methodological objections, including through the previous
detailed responses. The APA requires reasoned engagement with
significant comments, not acceptance of a commenter's preferred
outcome, and CMS's obligation to explain its reasoning is unchanged by
Loper Bright. Loper Bright addresses the standard courts apply when
reviewing an agency's interpretation of statutory text; it does not
impose a new or heightened comment-response obligation beyond existing
APA requirements. CMS maintains that its interpretation of section
1895(b)(3)(A)(iv) of the Act--which requires that the estimated
aggregate amount of expenditures under the PDGM be equal to the
estimated aggregate amount of expenditures under the previous 153-group
payment system--reflects the best reading of the statutory text, which
is the standard Loper Bright directs courts to apply independently.
Comment: Some commenters stated that simulating 60-day episodes may
understate differences, including differences in clinical group
assignments between the pre-PDGM and the PDGM systems. They stated that
because CMS assigns the first period's diagnosis and clinical group to
the entire episode, it may understate counterfactual case mix when the
second period reflects greater acuity and does not capture mid-episode
case-mix changes permitted under the former system.
Response: Any change in the average case-mix weight is counteracted
through a corresponding change in the payment rate so that aggregate
expenditures are budget neutral regardless of whether there are
clinical group differences. Recalibration ensures that payment
incentives for future utilization are aligned with the design of the
payment system (for example, recalibration ensures roughly a third of
periods and episodes are in a particular functional level grouping).
Any differences, such as clinical group assignments, that are part of
the changes attributed to the PDGM are accounted for when we compare
the aggregate expenditures from pre-PDGM and PDGM claims.
Comment: Some commenters raised concerns about the assumptions CMS
used to crosswalk the Outcome and Assessment Information (OASIS)-E to
OASIS-D during repricing. They believe that mapping OASIS-E responses
back to earlier OASIS-E specifications could understate severity or
misclassify counterfactual case-mix groups.
[[Page 72037]]
Response: As discussed in the CY 2025 HH PPS final rule (89 FR
88361), in response to an update of the OASIS instrument, we updated
two minor technical parts and added new assumptions in the first
repricing step (creating simulated 60-day episodes from 30-day
periods). However, in the CY 2026 HH PPS final rule (90 FR 55364), we
acknowledged that because it is difficult to definitively isolate the
behaviors directly related to the PDGM implementation after CY 2022, we
were only finalizing a permanent adjustment based on data from CYs 2020
through 2022. Because of that decision, the finalized mapping of OASIS-
E to OASIS-D is not used for calculations related to the proposed
payment adjustments in this final rule. While we are not implementing a
permanent adjustment in this final rule, we still follow this process
to provide the calculation for the illustrative permanent adjustments
presented in tables 2 and 3, in order to comply with statutory
requirements.
Comment: Several commenters stated that data from CYs 2020 through
2022 should also not be used to isolate PDGM-related behavior change
and that consequently, those years should not be used to calculate
permanent or temporary adjustments. Other commenters suggested that CMS
not use CY 2022 claims as part of the repricing methodology. Commenters
stated that annual recalibration began in CY 2022, not CY 2023 using
disrupted CY 2020 data and that CMS should recalculate the total
permanent adjustments excluding 2022 claims. Commenters noted their
belief that CMS should at a minimum, not finalize the proposed -3.0
percent temporary adjustment for CY 2027, exclude the data for CY 2022,
and recalculate the total permanent adjustments determined based on
only the data from CYs 2020 and 2021.
Response: We remind commenters that repricing compares expenditures
paid under the PDGM and pre-PDGM systems to determine if we are paying
differently under the PDGM than we otherwise would have absent the new
payment system (that is, the 153-group system). In the CY 2023 HH PPS
proposed rule (87 FR 37615), we described an analysis that showed the
decline in the average case-mix weight for simulated 60-day episodes
was largely driven by reductions in therapy utilization instead of the
clinical score (which may be impacted by diagnoses).
We acknowledge that the CY 2022 HH PPS final rule included
recalibration of case-mix weights using CY 2020 claims and reassignment
of certain ICD-10-CM codes to PDGM clinical and comorbidity groups. It
is important to note that these policy changes do not affect aggregate
expenditures under the PDGM. In contrast, updating LUPA visit
thresholds in the CY 2023 HH PPS final rule (87 FR 66815 through 66816)
did affect aggregate expenditures. In the CY 2023 final rule, we
finalized our proposal to recalibrate the PDGM case-mix weights,
updated points for functional impairment levels, reassigned certain
ICD-10-CM codes related to the PDGM clinical groups and comorbidity
groups, and updated LUPA visit thresholds using CY 2021 data (87 FR
66815 through 66846). Our data analysis indicated that visits in CY
2021 were similar to visits in CY 2020. We believed that CY 2021 data
would be more indicative of visit patterns in CY 2023 rather than
continuing to use the LUPA thresholds derived from the CY 2018 data
pre-PDGM. Therefore, we finalized updates to the LUPA thresholds for CY
2023 using data from CY 2021.
We also remind commenters that recalibration is done in a budget
neutral manner, as we apply a case-mix weight recalibration budget
neutrality factor to the national standardized 30-day payment rate.
Regarding concerns from commenters about using claims data from CY
2022, we provided analysis in the CY 2026 HH PPS final rule (90 FR
55364 through 55366) that suggested that provider behavior changed more
significantly in the years immediately following the implementation of
the PDGM, but decreased in magnitude overall starting in CY 2023. These
changes, that may indicate HHAs were adapting to the implementation of
a new case-mix system, have decreased in magnitude (90 FR 29121 through
29125) to the extent that we believe the implementation of the PDGM is
the reason for these changes through CY 2022.
We remind commenters 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, and 10 and Figure 3 in the CY 2026 HH
PPS proposed rule (90 FR 29121 through 29125)), we see indicators that
suggest provider behavior changed more significantly in the years
immediately following the implementation of the PDGM, but has decreased
in magnitude overall starting in CY 2023.
MedPAC's analysis of home health trends after implementation of the
PDGM is consistent with our findings. In its March 2026 Report to
Congress, MedPAC provided a mandated report on the impact of the
implementation of the PDGM.\4\ The report examined outcomes from home
health care services regardless of whether they were preceded by a
hospitalization. MedPAC stated that fewer therapy visits per episode
were directionally consistent with the PDGM's exclusion of the number
of therapy visits as a payment factor and referenced CMS's concern for
how the prior payment system encouraged therapy provision through
financial incentives rather than patient need. Overall, MedPAC found
that the implementation of the PDGM did not substantially affect
overall access to home health care and that the transition to the new
case-mix system did not negatively affect beneficiaries. As presented
in Figures 14-3 and 14-4 of the report, our conclusion regarding the
majority of behavior change occurring in CYs 2020 through 2022 is
supported by MedPAC's findings, with declining trends for the share of
Medicare beneficiaries with at least one home health stay and reduction
of average number of visits per stay during CYs 2020 through 2022. That
is, the most substantial declines occurred in the first few years after
the implementation of the PDGM (that is, CYs 2020-2022).
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\4\ <a href="https://www.medpac.gov/wp-content/uploads/2026/03/Mar26_Ch14_MedPAC_Report_To_Congress_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2026/03/Mar26_Ch14_MedPAC_Report_To_Congress_SEC.pdf</a>.
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For the reasons discussed earlier, we continue to acknowledge the
difficulty in attributing any behavior change occurring from CYs 2023
through 2025 directly to the PDGM implementation and its effects on
expenditures from the other policy changes occurring in those years. As
discussed in the CY 2026 final rule (90 FR 55365), 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 changes directly
attributable to the implementation of the PDGM occurred in CYs 2020
through 2022, we will continue to calculate the permanent adjustment
for CYs 2020 through 2022. In response to commenters' request that CMS
not finalize the proposed -3 percent temporary adjustment in CY 2027,
we decline to do so as we continue to believe that applying a temporary
adjustment in CY 2027 mitigates the need for a larger temporary
adjustment in the future. Finalizing a -3 percent temporary adjustment
[[Page 72038]]
ensures that CMS continues to recoup retrospective overpayments as
required by law and ensures financial stewardship of the Medicare Trust
Funds.
Final Decision: We continue to adhere to the methodology finalized
in the CY 2026 HH PPS final rule (90 FR 55365 through 55367) and
reiterate that it complies with the statutory requirement to evaluate
and adjust payments based on actual behavior changes on estimated
aggregate expenditures. 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 2025. We are finalizing a 3.0 percent
temporary reduction in CY 2027, that is equivalent to a 0.9700
temporary adjustment factor, to the CY 2027 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 $4.9 billion
through CY 2025, and we estimate that implementing a -3.0 percent
temporary adjustment will allow us to recoup $500 million of this total
dollar amount.
C. CY 2027 Home Health Low Utilization Payment Adjustment (LUPA)
Thresholds, Functional Impairment Levels, Comorbidity Sub-Groups, and
Case-Mix Weights
1. Final CY 2027 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 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, 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 that 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 COVID-19 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 be 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 2027, we proposed to update the LUPA thresholds using CY
2025 home health claims utilization data (using more complete CY 2025
claims data as of July 14, 2026), 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 2025 home health claims utilization data, we
determined that LUPA visit patterns in 2025 were similar to visits in
2024 and a total of 10 case-mix groups had a decline in their LUPA
threshold of a single visit and one case-mix group had their LUPA
threshold increase by a single visit. The proposed LUPA thresholds for
the CY 2027 PDGM payment groups with the corresponding Health Insurance
Prospective Payment System (HIPPS) codes and the case-mix weights can
be found in the CY 2027 HH PPS proposed rule (91 FR 41255).
We solicited public comment on the proposed updates to the LUPA
thresholds for CY 2027. The following is a summary of the comments we
received and our responses.
Comment: Most commenters expressed support for CMS's continued
practice of annually recalibrating LUPA thresholds using the most
recent complete claims data and characterized the proposed threshold
reductions across 18 payment groups as ``modest but directionally
favorable''. Two commenters identified a proposed LUPA threshold of 3.5
visits for HIPPS Code 4LC11 in the ``CY 2027 Proposed HH PDGM Case Mix
Weights and LUPA Thresholds'' file (as posted 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>), and asked CMS to
clarify whether this should be read as 3 visits, 4 visits, or whether
it reflects a true partial threshold.
Response: We thank commenters for their support and feedback on the
annual recalibration for LUPA thresholds. We calculated the proposed CY
2027 LUPA thresholds using CY
[[Page 72039]]
2025 home health claims utilization data as of March 15, 2026, which
identified 18 case-mix groups with a one-visit decrease. We are
finalizing CY 2027 LUPA thresholds using more complete CY 2025 home
health claims utilization data as of July 14, 2026, which shifted the
visit distribution for eight of the 18 proposed groups and reduced the
final count to 10 case-mix groups with a one-visit decrease.
Additionally, we reviewed the case-mix weight and LUPA thresholds
published in the CY 2027 HH PPS proposed rule (91 FR 41261) in response
to these comments and can confirm that the value of 3.5 visits listed
for HIPPS Code 4LC11 was the result of an inadvertent technical error.
LUPA visit thresholds are calculated as whole numbers, consistent with
all other case-mix groups. We are publishing the corrected, finalized
whole number LUPA threshold for HIPPS Code 4LC11 of three for CY 2027
in this final rule and are correcting this error in the technical files
accompanying the final rule. We are otherwise finalizing the LUPA
thresholds contained in table 11 using more complete CY 2025 claims
data as of July 14, 2026.
Comment: Some commenters raised concerns that CMS is basing updates
to the proposed LUPA thresholds on potentially fraudulent data,
pointing specifically to clinically complex, short duration episodes
and what they describe as high fraud areas such as Los Angeles County.
These commenters stated that this distortion disadvantages legitimate
HHAs that serve genuinely high-cost patients as fraudulent, low-acuity,
high-volume billing skews the ratio's underlying data.
Response: We appreciate commenters' concerns about potential
fraudulent billing and its impact on the proposed LUPA thresholds.
However, we remind commenters that outlier billing patterns do not
necessarily indicate fraudulent practice. We did not propose, and are
not adopting, a geographic exclusion or separate modeling approach for
identified outliers in calculating the CY 2027 LUPA thresholds. As
such, we include the most recent and complete claims data available
when it updates the LUPA thresholds. Nevertheless, we thank commenters
for sharing their insight on how CMS can address fraud concerns in the
home health market. Depending on the circumstances, an anomalous
pattern can prompt further review and may trigger an investigation into
fraud, waste, and abuse. Specifically, cost report fraud and abusive
billing behavior require action through the appropriate channels that
hold enforcement authority and we encourage commenters to report
suspected fraud at: <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>.
Comment: One commenter recommended that when CMS adjusts clinical
group assignments or comorbidity subgroups affecting LUPA thresholds,
CMS should release revised grouper specifications and testing files at
least 90-120 days prior to the January 1 effective date, to prevent
claims disruption across clearinghouses and billing vendors.
Response: We thank the commenter for this feedback. The ICD-10-CM
diagnosis code mappings used by the grouper (clinical groupings,
comorbidity adjustments) and the LUPA thresholds are typically
previewed in the proposed rule (published around late June/early July)
so stakeholders can comment, and are then finalized in the final rule
(published in early November). Each update of the Home Health Grouper
software is available for beta testing approximately 6-8 weeks prior to
the implementation date, and shortly before the final rule is
published. To sign up to beta test the home health software release,
stakeholders can email <a href="/cdn-cgi/l/email-protection#89e1e1f9f9faeefbe6fcf9ecfbece4e8e0e5c9fae6e5ffece7fdfce4a7eae6e4"><span class="__cf_email__" data-cfemail="630b0b13131004110c16130611060e020a0f23100c0f15060d17160e4d000c0e">[email protected]</span></a> and provide
their contact information. However, because we are still finalizing
edits to diagnosis mapping based on comments received on the elements
that make up the home health grouper that are previewed in the proposed
rule, CMS cannot release the beta testing any sooner than 6-8 weeks
prior to the implementation date.
Final Decision: We are finalizing the LUPA threshold updates as
proposed for CY 2027 using CY 2025 home health claims utilization data
(using more complete CY 2025 claims data as of July 14, 2026),
including the one-visit decrease for ten case-mix groups and the one-
visit increase for one case-mix group. The final LUPA thresholds for
the CY 2027 PDGM payment groups with the corresponding Health Insurance
Prospective Payment System (HIPPS) codes and the case-mix weights are
listed in table 11 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>. We will continue to monitor
national LUPA rates and data indicators through routine program
monitoring.
2. Final CY 2027 Functional Impairment Levels
Under the PDGM, the functional impairment level is determined by
responses to certain OASIS items associated with activities of daily
living 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 2027, we proposed using CY 2025 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>, provide 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 2027. The final updated OASIS
functional points table and the table of functional impairment levels
by clinical group for CY 2027 are listed in tables 6 and 7,
respectively.
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We solicited public comment on the proposed updates to the
functional points and the functional impairment levels by clinical
group. The following is a summary of the comments we received and our
responses.
Comment: Several commenters opposed CMS's proposal to reduce the
point value assigned to OASIS item M1860 response ``3'' (for ``able to
walk only with the supervision or assistance of another person at all
times'') to zero points for CY 2027, which is down from 1 point in CY
2026 and down from 6 points as recently as CY 2022. These commenters
stated that M1860 response ``3'' covers a wide and clinically
meaningful range of ambulation impairment (ranging from contact guard
assistance to maximum assist) and that collapsing it to zero points
equates it with no impairment at all and resultingly makes it appear
progressively less resource intensive solely as a result of annual
recalibration. Commenters requested that CMS explain the basis for the
change and commit to a stable and anchored scoring approach for M1860
response ``3'' going forward. Other commenters raised similar concerns
that the proposed functional impairment thresholds could shift a
meaningful number of patient episodes from high to medium and medium to
low functional impairment classifications, even though the underlying
clinical needs of those patients have not changed. A few commenters
identified specific proposed point reductions, including point values
for M1830 (bathing) and for M1820 (ability to dress lower body) at low
to moderate impairment levels, while severe impairment levels remain
largely unchanged.
Commenters stated that this pattern in which response categories
that encompass wide and clinically meaningful ranges of impairment are
reduced in points, effectively equating those levels of impairment with
no impairment at all and, consequently, making them appear
progressively less resource intensive even though the underlying
clinical needs of the patients have not changed concentrates payment
recognition only on the most severely
[[Page 72042]]
dependent patients and undervalues resources devoted to patients with
low to moderate limitations. To counter this, commenters recommended
CMS implement greater stability in the functional scoring methodology
by implementing fixed functional point values for a multiyear period,
recalibrating only when CMS identifies statistically/clinically
meaningful changes in patient needs rather than through full annual
recalibration.
Response: We proposed the revised M1860, M1830 and M1820 point
values based on updated regression analysis of CY 2025 claims and OASIS
data reflecting the empirical association between OASIS responses and
resource utilization, consistent with the same methodology CMS has
applied in each annual PDGM recalibration cycle since implementation.
CMS recognizes that HHAs whose patient populations differ from the
national distribution may experience varied effects from the nationally
calibrated set of functional impairment thresholds. However, functional
impairment levels are calibrated using national data to ensure the
methodology reflects resource use across the Medicare home health
population as a whole, as we believe annual recalibration using the
most recent complete data year is necessary to ensure functional
impairment scoring continues to reflect current clinical and
utilization patterns. As such CMS declines to propose or implement a
floor or multiyear fix on point values for any individual OASIS
response.
Comment: Several commenters recommended that CMS transition away
from OASIS M items toward the exclusive use of GG functional items in
order to determine functional impairment levels, highlighting that GG
items would provide more clinically precise measurement and would
better differentiate differences in resource use that the current OASIS
M item categories collapse into a single data point.
Response: We appreciate commenters' interest in a potential
transition to Section GG items for functional impairment scoring. We
will continue to evaluate the feasibility of using the GG items for
payment.
Comment: A few commenters challenged the structural basis of CMS's
functional impairment methodology, under which point values and
thresholds are calibrated so that approximately one third of periods
within each clinical group fall into the low, medium, and high
functional impairment categories, characterizing this as ``arbitrary''.
Response: We thank commenters for their feedback and 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, a third classified
as medium, and a third classified as high functional impairment.
Likewise, the PDGM groups home health periods of care using functional
impairment scores based on functional OASIS items with similar resource
use and has 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 2027 as proposed, using
updated CY 2025 claims data (as of July 14, 2026).
3. Final CY 2027 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> 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> 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> 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 2027, we proposed to use the same
methodology used to establish the comorbidity subgroups to update the
comorbidity subgroups using CY 2025 home health data with linked OASIS
data.
For CY 2027, we proposed to update the comorbidity subgroups to
include 21 low comorbidity adjustment subgroups and 100 high
comorbidity adjustment interaction subgroups. The proposed CY 2027 low
comorbidity adjustment subgroups and the high comorbidity adjustment
interaction subgroups including those diagnoses within each of these
comorbidity adjustments were
[[Page 72043]]
included in tables 21 and 22 in the CY 2027 HH PPS proposed rule (91 FR
41245).
Using more updated claims data for this final rule, there are 22
low comorbidity subgroups, and 103 high comorbidity subgroups for CY
2027 as shown in tables 8 and 9.
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We invited comments on the proposed updates to the low comorbidity
adjustment subgroups and the high comorbidity adjustment
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interactions for CY 2027. The following is a summary of the comments we
received and our responses.
Comment: Several commenters expressed general support for CMS's
proposed CY 2027 comorbidity subgroup structure, agreeing the proposed
changes generally align payment with the cost of caring for patients
with multiple interacting diagnoses and recommended CMS continue
evaluating the reimbursement impact of comorbidity revisions for
diabetes and chronic wound patients.
Response: We appreciate commenters' support and comments regarding
the reimbursement impacts of the proposed comorbidity revisions for
patients with diabetes and chronic wounds. CMS will continue to
evaluate the effects of these revisions through annual recalibration
using the most recently available data.
Comment: Some commenters raised concerns regarding proposed
modifications that would lower certain wound-related high comorbidity
interactions and stated this may not fully account for the skilled
nursing resources required to manage patients with chronic wounds who
also have diabetes, peripheral vascular disease, or renal disease,
since such conditions significantly influence wound healing/
hospitalization risk and require frequent clinical assessment and
medication management. These commenters noted this may
disproportionately affect HHAs serving medically complex wound care
populations if the final subgroup structure does not adequately capture
such interactions.
Response: We appreciate commenters' concerns regarding resource
needs of certain patient populations. However, we proposed the revised
high comorbidity interaction subgroups based on updated analysis of CY
2025 claims data, which is most appropriate as it reflects the current
empirical relationship between specific diagnosis combinations and
resource utilization across the Medicare home health population. We
also note that the Wounds clinical group still has some of the highest
case-mix weights, which should account for the resource intensity of
caring for patients with wounds. We will continue to annually analyze
the reported comorbidities along with the associated resource use to
determine if any policy changes are necessary and appropriate in the
future.
Final Decision: We are finalizing the updated comorbidity
adjustment subgroups and the high comorbidity adjustment interactions
using CY 2025 home health data. For CY 2027, the final updated
comorbidity adjustment subgroups include 22 low comorbidity adjustment
subgroups as identified in table 8 and 103 high comorbidity adjustment
interaction subgroups as identified in table 9. The final CY 2027 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 2027 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 2027 case-mix weights, we used
CY 2025 home health claims data with linked OASIS data (as of March 15,
2026). We included the proposed case-mix weights in table 11 of the
proposed rule (91 FR 41255). In this final rule, we updated these case-
mix weights with claims data as of July 14, 2026, as shown in table 11.
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 12 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. 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 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
[[Page 72049]]
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 10 shows the coefficients
of the payment regression used to generate the weights, and the
coefficients divided by average resource use.
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The final updated case-mix weights for CY 2027 are listed in table
11 and will also be posted on the HHA Center web page upon display of
this final rule.
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Changes to the PDGM case-mix weights are implemented in a budget
neutral manner by multiplying the CY 2027 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
2027, we will continue the practice of using the most
[[Page 72062]]
recent complete home health claims data at the time of rulemaking,
which is CY 2025 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 2027 PDGM case-mix weights (developed using CY
2025 home health claims data) are applied to CY 2025 utilization
(claims) data are equal to total payments when CY 2026 PDGM case-mix
weights (developed using CY 2024 home health claims data) are applied
to CY 2025 utilization data. This produces a case-mix budget neutrality
factor for CY 2027 of 1.0045.
We invited public comments on the CY 2027 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: Most commenters expressed support for CMS's practice of
annually recalibrating case-mix weights using the most recent complete
claims and OASIS data and generally agreed this practice is necessary
to keep payment aligned with current utilization and clinical patterns.
Response: CMS appreciates commenters' support for the annual
recalibration methodology required to maintain payment accuracy under
the PDGM.
Comment: Some commenters raised concerns that recalibration may
systematically underpay for high complexity, caregiver intensive
patients (Alzheimer's disease and related dementias, wound care, high-
acuity/dual-eligible populations), potentially discouraging HHAs from
accepting them. Specifically, a commenter stated that the Wound
clinical group, a high-acuity home health population, appears to take
the largest case-mix cut. While, by contrast, MMTA-Endocrine sees a
comparatively favorable increase. This commenter expressed concern that
this shifts care away from HHAs who accept more complex patients, while
rewarding low-acuity billing patterns.
Commenters also suggested that historical claims data used for
recalibration may be distorted by what they describe as fraud/outlier
billing (particularly in Los Angeles County) and COVID-19 PHE
anomalies, which results in annual volatility in thresholds that
ultimately creates operational/planning challenges. Commenters stated
that this is especially the case for those HHAs whose patients differ
from national averages leading to disproportionate payment shifts
unrelated to actual patient needs.
Response: CMS notes that case-mix weights are derived from resource
use patterns reflected in the most recent complete claims and
assessment data, consistent with the statutory requirement to base
weights on actual utilization. CMS also reminds stakeholders that the
use of percentile trimming methodologies currently applied to claims
data are designed to limit the influence of individual outlier claims.
That said, for CY 2027, the use of CY 2025 claims represents the most
complete and current data available. Also, as it relates to
stakeholders' concerns regarding fraudulent/anomalous claims, we 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.
To add, the 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. 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. Finally, we note that the case-mix weights for
high-intensity clinical and functional groups such as complex nursing,
wound care, and the rehabilitation groups remain among the highest
weighted case-mix weight categories for the finalized CY 2027 Home
Health recalibration update. For example, the Wound-High Functional
Impairment-Early-Institutional-High Comorbidity carries a case-mix
weight of 1.9221, and the MMTA-Endocrine-High Functional Impairment-
Early-Institutional-High Comorbidity has a case-mix weight of 1.7469.
This indicates that recalibrated weights continue to account for the
increased resource needs and costs associated with providing care to
high-acuity patients, helping to ensure the adequate provision of
needed home health services. Moreover, fraud, waste and abuse cannot be
determined through claims data analysis alone. Thus, targeted program
integrity efforts (which may involve examining individual providers and
claims via established processes) remain the appropriate mechanism to
identify and address fraud, waste and abuse. When providers are removed
from the Medicare program, their claims are no longer reflected in
subsequent rate-setting data. However, removal from the Medicare
program for fraud, waste and abuse requires adjudicatory process. CMS
cannot presumptively exclude all claims from the recalibration data set
based on geographic location (such as Los Angeles County, as raised by
commenters) or general utilization patterns (such as anomalous or
outlier claims), and deem them as fraudulent absent this adjudicatory
process or simply because of stakeholders' assertions alone.
Nevertheless, CMS will continue to evaluate ways to improve
transparency while monitoring broader system trends such as rising
acuity, workforce shortages, and operational costs, as appropriate.
Comment: One commenter raised a distinct case-mix-adjacent concern
regarding the admission-source variable used in the HH PPS case-mix
adjustment methodology. This commenter noted that the CY 2026 Hospital
Outpatient Prospective Payment System final rule finalized a three-year
phasing out of the inpatient only list with an expansion of procedures
permitted in ambulatory surgical centers. The commenter stated that as
care continues shifting from inpatient to outpatient settings, the
admission source distribution used in case-mix adjustment will change
in ways not fully captured by historical home health claims data, and
asked CMS to continue monitoring and assessing whether refinements to
the admission-source variable are warranted.
Response: We acknowledge this comment and reiterate our commitment
to continue monitoring whether refinements to the admission-source
variable are warranted for consideration in future rulemaking as
appropriate.
Final Decision: We are finalizing the recalibrated case-mix weights
for CY 2027, updated with claims data as of July 14, 2026. 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 2027 national,
standardized 30-day period payment rate. As stated previously, the
final case-mix budget neutrality factor for CY 2027 is 1.0047.
E. Final CY 2027 Home Health Payment Rate Updates
1. Final CY 2027 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
[[Page 72063]]
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 is 74.9
percent, and the non-labor-related share is 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 (MACRA) (Pub. L. 114-10, enacted April 16,
2015)) and CY 2020 (under section 53110 of the Balanced Budget Act of
2018)), 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. The productivity measure referenced in
section 1886(b)(3)(B)(xi)(II) of the Act is published by BLS as private
nonfarm business total factor productivity (TFP) (previously referred
to as multifactor productivity).\5\ We refer readers to <a href="https://www.bls.gov/productivity">https://www.bls.gov/productivity</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>.
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\5\ <a href="https://www.bls.gov/productivity/notices/2021/mfp-to-tfp-term-change.htm">https://www.bls.gov/productivity/notices/2021/mfp-to-tfp-term-change.htm</a>.
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The proposed home health update percentage for CY 2027 was based on
the estimated home health market basket percentage increase, specified
at section 1895(b)(3)(B)(iii) of the Act, of 3.1 percent (based on IHS
Global Inc.'s first quarter 2026 forecast with historical data through
fourth quarter 2025). The estimated CY 2027 proposed home health market
basket percentage increase of 3.1 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 2026 forecast, the proposed
productivity adjustment was estimated to be 1.0 percentage point for CY
2027. Therefore, the proposed productivity-adjusted CY 2027 home health
market basket update was 2.1 percent (proposed 3.1 percent market
basket percentage increase, reduced by a proposed 1.0 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 CY 2027 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 2027, the proposed
home health payment update percentage was 0.1 percent (2.1 percent
minus 2 percentage points).
We invited public comments on the proposed CY 2027 home health
market basket percentage increase and productivity adjustment.
We received public comments on the proposed home health update
percentage. The following is a summary of the comments we received and
our responses.
Comment: While several commenters expressed support for the
proposed 2.1 percent market basket update, many expressed that the
proposed market basket percentage increase is inadequate to offset
actual growth in the cost of furnishing home health care. Commenters
most frequently cited rising labor costs (including wages, benefits,
and recruitment/retention expenses), transportation and fuel costs,
medical supply and pharmaceutical costs, and technology, cybersecurity,
and regulatory compliance costs as exceeding the rate of the proposed
market basket update.
A few commenters noted that cumulative market basket updates from
CY 2020 through CY 2027 have lagged behind overall inflation indices
such as the Employer Cost Index for Total Compensation and the Producer
Price Index for All Commodities over the same period.
A few commenters requested that CMS clarify its market basket
forecasting methodology and publish underlying data supporting the
update calculation.
Response: 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 mix of goods and
services included in home health services that were purchased in the
base period. Therefore, the market basket is designed to measure price
inflation for HHAs and does not reflect increases in costs associated
with changes in the volume or intensity of input goods and services.
The home health market basket was last rebased to reflect a 2021 base
year effective for CY 2024. We refer commenters to the CY 2024 HH PPS
final rule (88 FR 77726) for a detailed description of the methodology
used to rebase the home health market basket.
CMS understands that the market basket updates may differ from
other overall inflation indexes; however, we reiterate that these
topline indexes are not comparable since they measure different mixes
of products, services, or wages than the legislatively defined CMS home
health market basket. CMS welcomes feedback on alternative data sources
for the market basket price proxies that appropriately measure price
inflation and not costs. Suggestions can be emailed to
<a href="/cdn-cgi/l/email-protection#2a4947594e4442596a49475904424259044d455c"><span class="__cf_email__" data-cfemail="44272937202a2c37042729376a2c2c376a232b32">[email protected]</span></a>.
We acknowledge commenters' requests for CMS to provide additional
information on the assumptions and inputs that go into developing a
market basket update. As previously noted, the detailed market basket
cost weights (including the methodology) and price proxies used in the
market baskets were set forth in the CY 2024 HH PPS final rule (88 FR
77726). Additionally, we continually make available on the CMS website
(<a href="https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-data">https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-data</a>) the detailed
historical growth rates for the market baskets as well as price
forecasts for the aggregated cost weights (such as compensation and
utilities). We reiterate that the price proxy forecasts that underlie
the home health market basket percentage increase (and all CMS market
baskets) are derived from proprietary data produced by IHS
[[Page 72064]]
Global Inc. (IGI), a nationally recognized economic and financial
forecasting firm. Because these forecasts are proprietary to IGI, CMS
cannot make the full underlying data publicly available. CMS uses
independent, third-party forecasting services such as IGI specifically
to ensure that the market basket projections reflect sound, objective
economic analysis. We also note that when developing its forecast for
the various price indexes used in the home health market basket, IGI
considers industry-specific and overall macroeconomic factors that
influence pricing trends. We strive for transparency regarding our
methods and note that general inquiries on the forecasting methodology
can be emailed to <a href="/cdn-cgi/l/email-protection#4b2826382f2523380b28263865232338652c243d"><span class="__cf_email__" data-cfemail="65060816010b0d16250608164b0d0d164b020a13">[email protected]</span></a>.
Comment: Several commenters identified a cumulative home health
market basket forecast error of approximately 7.3 to 7.6 percentage
points for calendar years 2021 through 2025. Commenters assert that
this forecast error has been permanently embedded in the home health
payment rates contributing to the chronic underfunding of home health
services relative to actual costs incurred.
Some commenters requested that CMS finalize a one-time forecast
error correction of approximately 7.6 percentage points to remedy this
cumulative underpayment.
Response: While the projected home health market basket updates
have recently been underforecast (actual increases less forecasted
increases were positive), over longer periods the forecasts have
generally averaged close to the historical measures. The cumulative
forecast error since HH PPS inception (fiscal year 2002 to CY 2025,
excluding CY 2018 and CY 2020 when the market basket update was
statutorily mandated) is 0.5 percent. CMS will continue to monitor the
methods associated with the market basket forecasts as appropriate to
ensure there are not underlying systematic issues in the forecasting
approach.
We note that the recent underforecast of the home health market
basket increase was largely due to unanticipated inflationary and labor
market pressures as the economy emerged from the COVID-19 PHE. However,
an analysis of the forecast error of the home health market basket over
a longer period of time shows the forecast error has been both positive
and negative. Only considering the forecast error for years when the
final home health market basket update was lower than the actual market
basket update does not consider the full experience and impact of
forecast error, in particular the numerous years that providers
benefited from the forecast error.
For these reasons, we continue to believe it is not appropriate to
include adjustments to the market basket update for future years based
on the difference between the actual and forecasted market basket
increase in prior years.
Comment: Several commenters stated that the statutorily required
1.0 percentage point productivity adjustment does not reflect the
operational realities of home health care delivery. These commenters
characterized home health as a labor-intensive service delivered to one
patient at a time in dispersed geographic settings, arguing that
meaningful productivity gains of the magnitude assumed by the broader
economy-wide total factor productivity measure are not achievable in
this care setting.
A few commenters cited an analysis by the CMS Office of the Actuary
suggesting that only approximately 0.1 percentage point of productivity
gain is realistically achievable for home health, which is
substantially less than the proposed 1.0 percentage point reduction.
A few commenters noted that the proposed 1.0 percent home health
productivity adjustment is inconsistent with the 0.9 percent
productivity adjustment applied to hospice payments, despite the
similarity of the two programs' labor-intensive, in-home workforce
models, and requested that CMS reconcile this discrepancy.
One commenter stated that the productivity adjustment has been
applied asymmetrically over time, noting that CMS set the productivity
adjustment to zero in FY 2021 a year when application of the standard
methodology would have increased (not decreased) payments, and asserted
that this asymmetry has widened the gap between home health payments
and actual provider costs over time.
A few commenters suggested that CMS work with Congress or use its
``special exceptions and adjustments'' authority to reduce or waive the
1.0 percent productivity adjustment for CY 2027 in light of workforce
shortages and rising patient acuity.
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 2027 productivity adjustment is
derived based on the 10-year moving average growth in economy-wide
nonfarm business TFP for the period ending in CY 2027. 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 note that the differing productivity adjustments between home
health and hospice that commenters identified are due to timing and
data availability rather than industry characteristics. Both
productivity adjustments use the most recent published BLS historical
TFP data (<a href="https://www.bls.gov/productivity">https://www.bls.gov/productivity</a>) at the time of rulemaking,
and IGI's 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>) is used to
derive annual TFP growth rates for 2026 and 2027. The annual index
level derived from this method is then interpolated to quarterly
levels, and the FY 2027, or hospice, productivity adjustment is equal
to the percent change in the 40-quarter moving average projected level
for the period ending September 30, 2027 relative to the 40-quarter
moving average projected level for the period ending September 30,
2026. For more information on the FY 2027 productivity adjustment used
to update hospice rates, refer to the FY 2027 Hospital Inpatient
Prospective Payment System Final Rule (91 FR 49931). Similarly, the CY
2027, or home health, productivity adjustment is equal to the percent
change in the 40-quarter moving average projected level for the period
ending December 31, 2027 relative to the 40-quarter moving average
projected level for the period ending December 31, 2026. 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 2027 productivity adjustment
reflects BLS historical TFP data through 2025 (released on March 19,
2026) and IGI's forecasted TFP growth for 2026 and 2027. The average
annual growth rate of historical TFP published by BLS for 2018 through
2025 is currently 1.0 percent and IGI is projecting average TFP growth
of about 0.9 percent for 2026 and 2027 based on IGI's third quarter
2026 forecast. Combining the
[[Page 72065]]
historical and projected TFP data over the entire 10-year time period
and interpolating into quarterly index levels results in a 10-year
moving average growth rate of TFP of 1.0 percent for CY 2027 (unchanged
from the CY 2027 HH PPS proposed rule).
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
1895(b)(3)(B)(vi) of the Act requires that the Secretary reduce the
market basket percentage increase by changes in economy-wide
productivity; therefore, only productivity adjustments that reduce the
market basket percentage increase in a given year are applied.
Furthermore, we appreciate the commenters' recommendations for CMS
to work with Congress or use its ``special exceptions and adjustments''
authority to reduce or waive the 1.0 percent productivity adjustment
for CY 2027 in light of workforce shortages and rising patient acuity.
However, the productivity adjustment is required by statute and is not
subject to the Secretary's discretion. Any change to how the
productivity adjustment is calculated or applied would require a
legislative change, not a regulatory one.
We thank the commenters for their comments. After consideration of
the comments received and consistent with our proposal, we are
finalizing, as proposed, to use more recent data to determine the CY
2027 productivity adjustment for the final rule.
Final Decision: Consistent with section 1895(b)(3)(B)(vi) of the
Act, we are finalizing the home health payment update methodology. The
market basket percentage increase for CY 2027 for the HH PPS is based
on IGI's third quarter 2026 forecast of the home health market basket
percentage increase, which is estimated to be 3.1 percent. As outlined
earlier in this section, we are applying a 1.0 percentage point
productivity adjustment to the CY 2027 home health market basket
percentage increase. Therefore, the final CY 2027 home health market
basket update is equal to 2.1 percent for HHAs that submit quality data
and 0.1 percent for HHAs that do not submit quality data.
2. Final CY 2027 Home Health Wage Index
a. Background
Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act require the
Secretary to provide appropriate adjustments to the proportion of the
payment amount under the HH PPS that account for area wage differences,
using adjustment factors that reflect the relative level of wages and
wage-related costs applicable to the furnishing of home health
services. Since the inception of the HH PPS, we have used inpatient
hospital wage data in developing a wage index to be applied to home
health payments. We proposed to continue this practice for CY 2027, as
it is our belief that, in the absence of home health-specific wage data
that accounts for area differences, using inpatient hospital wage data,
including taking into account any changes made by the Office of
Management and Budget (OMB) to Metropolitan Statistical Area (MSA)
definitions, is appropriate and reasonable for the HH PPS.
In general, OMB issues major revisions to statistical areas every
10 years, based on the results of the decennial census. However, OMB
occasionally issues minor updates and revisions to statistical areas in
the years between the decennial censuses. On April 10, 2018, OMB issued
OMB Bulletin No. 18-03, which superseded the August 15, 2017, OMB
Bulletin No. 17-01. On September 14, 2018, OMB issued OMB Bulletin No.
18-04 which superseded the April 10, 2018, OMB Bulletin No. 18-03.
These bulletins established revised delineations for Metropolitan
Statistical Areas, Micropolitan Statistical Areas, and Combined
Statistical Areas, and provided guidance on the use of the delineations
of these statistical areas. A copy of OMB Bulletin No. 18-04 may be
obtained at <a href="https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf">https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf</a>. In the CY 2021 HH PPS final rule (85 FR 70298), we
finalized our proposal to adopt the revised OMB delineations with a 5
percent cap on wage index decreases in CY 2021.
On July 21, 2023, OMB issued Bulletin No. 23-01, which updates and
supersedes OMB Bulletin No. 20-01, issued on March 6, 2020. OMB
Bulletin No. 23-01 establishes revised delineations for the MSAs,
Micropolitan Statistical Areas, Combined Statistical Areas, and
Metropolitan Divisions, collectively referred to as Core Based
Statistical Areas (CBSAs). A copy of OMB Bulletin No. 23-01 is
available online at <a href="https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf">https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf</a>.
According to OMB, the delineations from OMB Bulletin 23-01 reflect
the 2020 Standards for Delineating Core Based Statistical Areas (CBSAs)
(the ``2020 Standards''), which appeared in the Federal Register (86 FR
37770 through 37778) on July 16, 2021, and application of those
standards to Census Bureau population and journey-to-work data (for
example, 2020 Decennial Census, American Community Survey, and Census
Population Estimates Program data). The OMB ``2020 Standards'' define a
``Metropolitan Statistical Area'' as being associated with at least one
Urban Area that has a population of at least 50,000 and a
``Micropolitan Statistical Area'' as being associated with at least one
Urban Area that has a population of at least 10,000, but less than
50,000 (86 FR 37778).
In the CY 2025 HH PPS final rule (89 FR 88354), we finalized our
proposal to adopt the revised OMB delineations from OMB Bulletin 23-01
with a 5 percent cap on wage index decreases at the CBSA level as well
as at the county level. In that final rule we stated that we believe it
is important for the HH PPS wage index to use the latest OMB
delineations available in order to maintain a more accurate and up-to-
date payment system that reflects the reality of population shifts and
labor market conditions. We also stated that we believe using the most
current OMB delineations will increase the integrity of the HH PPS wage
index by creating a more accurate representation of geographic
variation in wage levels. In conjunction with our implementation of the
revised labor market delineations beginning in CY 2025, and consistent
with the treatment of Micropolitan Statistical Areas under the
Inpatient Prospective Payment System (IPPS), we also finalized
continuing to treat Micropolitan Statistical Areas as ``rural'' and
including Micropolitan Statistical Areas in the calculation of each
state's statewide rural wage index. Therefore, the HH PPS statewide
rural wage index is determined using IPPS hospital data from hospitals
located in Micropolitan Statistical Areas and the HH PPS wage index for
each CBSA is determined using IPPS hospital data from hospitals located
in Metropolitan Statistical Areas.
b. Five Percent Cap on Wage Index Decreases
In the CY 2023 HH PPS final rule (87 FR 66851 through 66853), we
finalized a policy that the CY HH PPS wage index will include a
permanent 5 percent cap on wage index decreases for CY 2023
[[Page 72066]]
and each subsequent year. Specifically, we finalized, for CY 2023 and
subsequent years, the application of a permanent 5 percent cap on any
decrease to a geographic area's wage index from its wage index in the
prior year, regardless of the circumstances causing the decline. That
is, we finalized a policy requiring that a geographic area's wage index
for CY 2023 will not be less than 95 percent of its final wage index
for CY 2022, regardless of whether the geographic area is part of an
updated CBSA, and that for subsequent years, a geographic area's wage
index will not be less than 95 percent of its wage index calculated in
the prior CY.
Previously this methodology was applied to all counties that make
up a CBSA or statewide rural area. However, in the CY 2025 HH PPS final
rule (89 FR 88418 through 88421), because of the adoption of the
revised OMB delineations from OMB Bulletin 23-01, we finalized a policy
applying this methodology to individual counties. Specifically, we
finalized a policy applying the 5 percent cap to counties that moved
from a CBSA or statewide rural area with a higher wage index value into
a new CBSA or statewide rural area with a lower wage index value, so
that the county's CY 2025 wage index would not be less than 95 percent
of the county's CY 2024 wage index value under the old delineation
despite moving into a new delineation with a lower wage index.
Due to the way that we proposed calculating the 5 percent cap for
counties that experienced an OMB designation change, some CBSAs and
statewide rural areas could have had more than one wage index value.
Specifically, some counties that changed OMB designations had a wage
index value that was different than the wage index value assigned to
the other constituent counties that made up that CBSA or statewide
rural area that they moved into after the application of the 5 percent
cap. However, for home health claims processing, each CBSA or statewide
rural area can have only one wage index value assigned to that CBSA or
statewide rural area. Therefore, we finalized a policy, beginning in CY
2025, that counties that have a different wage index value than the
CBSA or rural area into which they are designated after the application
of the 5 percent cap will use a wage index transition code. These
special codes are five digits in length and begin with ``50'' and the
remaining digits are unique for that code. The 50XXX wage index
transition codes are used only in specific counties; counties located
in CBSAs and rural areas that do not correspond to a different
transition wage index value will still use the CBSA number.
We also finalized a policy applying the 5 percent cap to these
specific counties that correspond to a different wage index value due
to a delineation change until the county's new wage index is more than
95 percent of the wage index from the previous calendar year. In order
to capture the correct wage index value, an HHA will continue to use
the assigned 50XXX transition code on home health claims for services
in these counties until the county's wage index value calculated for
that calendar year using the new OMB delineations is not less than 95
percent of the county's capped wage index from the previous calendar
year.
For CY 2027, the 5 percent cap on wage index decreases will
continue to be calculated at the county level as well as the CBSA and
statewide rural area level. While some counties that required a
transition code for CY 2025 and CY 2026 will continue to use the same
transition code for CY 2027, other counties that required a transition
code in CY 2025 and CY 2026 will no longer require a transition code in
CY 2027. The counties that will no longer require a transition code
beginning in CY 2027 have a CY 2027 wage index value in the CBSA or
rural area that the county was redesignated into that is higher than 95
percent of the county's CY 2026 wage index. Therefore, these counties
will use the CBSA or rural county code of the area into which they were
redesignated based on OMB Bulletin No. 23-01.
While we did not propose any changes to the 5 percent cap policy
for CY 2027, we did receive a few comments on the finalized policies.
The following is a summary of the comments we received and our
responses:
Comment: A few commenters expressed support for the finalized 5
percent cap policy.
Response: We thank the commenters for their support.
Comment: Some commenters recommended changes to the finalized cap
percentage. Specifically, some commenters suggested reducing the cap
percentage. These commenters suggested that even wage-index declines
within the 5 percent cap can erase most of the annual payment update in
competitive markets like Pennsylvania, Northern California, and
Michigan, leaving providers with net increases of only 0.4 to 0.5
percent. Therefore, a commenter recommended lowering the cap percentage
to 2 percent, while another commenter requested a provider-level floor
limiting total revenue loss to 1 percent. Another commenter suggested
that CMS could limit a provider's wage-index-related payment loss
relative to the overall annual payment update or adopt another
methodology that provides a more gradual transition where updated
geographic data produce substantial reductions.
Response: We appreciate commenters' recommendations for changes to
the finalized 5 percent cap policy. However, we did not propose to make
changes to this policy in the CY 2027 HH PPS proposed rule. Therefore,
these comments are outside the scope of the proposed rule. Any changes
to the finalized 5 percent cap policy would need to go through notice
and comment rulemaking. However, consistent with our finalized 5-
percent cap policy outlined in the CY 2023 HH PPS final rule (66851
through 66853), we continue to believe that 5 percent is a reasonable
level for the cap because it would more effectively mitigate any
significant decreases in a geographic area's wage index for a calendar
year, while still balancing the importance of ensuring that area wage
index values accurately reflect relative differences in area wage
levels. Furthermore, we believe that the 5 percent cap on wage index
decreases provides a degree of predictability in payment changes for
providers and allows providers time to adjust to any significant
decreases they may face year to year.
Final Decision: We did not propose any changes to the finalized 5
percent cap policy in the proposed rule. Therefore, the CY 2027 HH PPS
wage index will continue to include the 5 percent cap on wage index
decreases. For CY 2027, the 5 percent cap on wage index decreases will
also continue to be calculated at the county level. While some counties
that required a transition code for CY 2025 and CY 2026 will continue
to use the same transition code for CY 2027, other counties that
previously required a transition code will no longer require a
transition code in CY 2027. These counties will use the CBSA or rural
county code of the area they were redesignated into based on OMB
Bulletin No. 23-01. The complete list of counties and corresponding
transition codes can be found as a separate tab in the calendar year's
wage index file located on the CMS website at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health-pps/home-health-pps-wage-index">https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health-pps/home-health-pps-wage-index</a>.
c. Final CY 2027 HH PPS Wage Index
The appropriate wage index value is applied to the labor portion of
the HH
[[Page 72067]]
PPS rates based on the site of service for the beneficiary (defined in
section 1861(m) of the Act as the beneficiary's place of residence).
For CY 2027, we proposed to base the HH PPS wage index on the FY 2027
hospital pre-floor, pre-reclassified wage index for hospital cost
reporting periods beginning on or after October 1, 2022, and before
October 1, 2023 (FY 2023 cost report data). The CY 2027 HH PPS wage
index would not take into account any geographic reclassification of
hospitals, including those in accordance with sections 1886(d)(8)(B) or
1886(d)(10) of the Act but would include the 5 percent cap on wage
index decreases as discussed previously.
There exist some geographic areas where there are no hospitals, and
thus, no hospital wage data on which to base the calculation of the HH
PPS wage index. To address those geographic areas in which there are no
inpatient hospitals, and thus, no hospital wage data on which to base
the calculation of the CY 2027 HH PPS wage index, we proposed to
continue to use the same methodology discussed in the CY 2007 HH PPS
final rule (71 FR 65884) to address those geographic areas in which
there are no inpatient hospitals.
For urban areas without inpatient hospitals, we use the average
wage index of all urban areas within the State as a reasonable proxy
for the wage index for that CBSA. For CY 2027, the only urban area
without inpatient hospital wage data is Hinesville, GA (CBSA 25980).
Using the average wage index of all urban areas in Georgia as a proxy,
we proposed the CY 2027 wage index value for Hinesville, GA, would be
0.8797. With updated wage data, the final CY 2027 HH PPS wage index
value for Hinesville, GA will be 0.8798.
For rural areas that do not have inpatient hospitals, we use the
average wage index from all contiguous Core Based Statistical Areas
(CBSAs) as a reasonable proxy. The term ``contiguous'' means sharing a
border (72 FR 49859). In the CY 2025 HH PPS final rule (89 FR 88422),
we finalized a policy that rural North Dakota would become a rural area
without a hospital from which hospital wage data can be derived.
Therefore, in order to calculate the wage index for rural area 99935,
North Dakota, we finalized using as a proxy, the average pre-floor,
pre-reclassified hospital wage data from the contiguous CBSAs: CBSA
13900-Bismark, ND, CBSA 22020-Fargo, ND-MN, CBSA 24220-Grand Forks, ND-
MN, and CBSA 33500, Minot, ND. Using this methodology, we proposed that
the CY 2027 HH PPS wage index for rural North Dakota would be 0.8210.
With updated wage data, the final CY 2027 HH PPS wage index for rural
North Dakota is 0.8209.
Previously, the only rural area without a hospital from which
hospital wage data could be derived was rural Puerto Rico. However, for
rural Puerto Rico, we did not apply this methodology due to the
distinct economic circumstances that exist there (for example, due to
the proximity of almost all of Puerto Rico's various urban and non-
urban areas to one another, this methodology would produce a wage index
for rural Puerto Rico that is higher than that in half of its urban
areas). Instead, we used the most recent wage index previously
available for that area, which was 0.4047. Beginning in CY 2025, due to
the adoption of the revised OMB delineations, there is now a hospital
in rural Puerto Rico from which hospital wage data can be derived.
Therefore, we finalized a policy that the wage index for rural Puerto
Rico would now be based on the hospital wage data for the area instead
of the previously available wage index of 0.4047.
The unadjusted CY 2027 proposed wage index for rural Puerto Rico is
0.2577. However, because 0.2577 is more than a 5 percent decline in the
CY 2026 wage index, we proposed that the CY 2027 5 percent cap adjusted
wage index for rural Puerto Rico be set equal to 95 percent of the CY
2026 wage index of 0.3653, which resulted in a proposed wage index
value of 0.3470. With updated wage data, the unadjusted CY 2027 final
wage index for rural Puerto Rico is 0.2576. However, because 0.2576 is
more than a 5 percent decline in the CY 2026 wage index, the CY 2027 5
percent cap adjusted wage index for rural Puerto Rico will be set equal
to 95 percent of the CY 2026 wage index of 0.3653, which results in a
final wage index value of 0.3470.
Additionally, due to the adoption of the revised OMB delineations
in the CY 2025 HH PPS final rule, Delaware, which was previously an
all-urban state, now has one rural area with a hospital from which
hospital wage data can be derived. As such, we proposed that the CY
2027 wage index for rural Delaware would be 0.9590. With updated wage
data, the final CY 2027 wage index for rural Delaware is 0.9590.
Finally, the Northern Mariana Islands and American Samoa are rural
areas with no hospital data from which a wage index can be calculated.
In the CY 2026 HH PPS final rule (90 FR 55405), using our established
methodology for rural areas with no hospitals, we finalized that for CY
2026 and subsequent years, HHAs that provide services in the Northern
Mariana Islands and American Samoa would use CBSA 99965 (Guam) and
receive the wage index assigned to CBSA 99965 (Guam) of 0.9611. While
we appreciate that the islands of the Pacific Rim are not actually
contiguous, we believe that same principle applies here, and that Guam
is a reasonable proxy for American Samoa and the Northern Mariana
Islands. We believe that CBSA 99965 (Guam) represents a reasonable
proxy because the islands are located within the Pacific Rim and share
a common status as United States Territories.
The final HH PPS wage index file applicable for CY 2027 (January 1,
2027, through December 31, 2027) is available on the CMS website at
<a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health-pps/home-health-pps-wage-index">https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health-pps/home-health-pps-wage-index</a>.
We received public comments on the proposed HH PPS wage index. The
following is a summary of the comments we received and our responses.
Comment: A few commenters expressed support for the proposed CY
2027 HH PPS wage index.
Response: We thank the commenters for their support.
Comment: Commenters broadly criticized the current methodology of
using the inpatient hospital pre-floor, pre-reclassified wage index as
an inaccurate proxy for home health labor costs. With respect to
Maryland, several commenters stated that the current wage index
methodology imports the effects of Maryland's hospital cost-containment
incentives into Medicare payment for home health providers, which
creates a policy spillover where hospital wage data affected by
Maryland's Total Cost of Care Model is used to reduce payment to
providers that are outside the hospital global budget system. These
commenters recommended that CMS avoid exporting hospital-specific
budget incentives into the payment methodology for independent home
health and other post-acute providers.
Response: We continue to believe that in the absence of home health
specific data, the pre-floor, pre-reclassified hospital wage index is
appropriate for the geographic adjustment of home health claims. While
we did not propose any changes to the CY 2027 HH PPS wage index
methodology in the proposed rule, we did request information on changes
to the home health wage index methodology and may consider these
recommendations and the comments received on the RFI in future
rulemaking as appropriate. A discussion of the comments received on the
RFI for a new home health specific
[[Page 72068]]
wage index can be found in section III.F. of this final rule.
Comment: Several commenters expressed concern that home health
providers are unable to benefit from IPPS hospital wage index policies
such as reclassification and the rural floor. A commenter recommended
that CMS modify the agency's wage index policy to use the final FY 2027
hospital wage index, including geographic reclassifications and rural
floor adjustments.
Response: While we appreciate the commenters' concerns that HHAs
are unable to benefit from IPPS hospital wage index policies, we
continue to believe that the regulations and statutes that govern the
HH PPS differ from the hospital regulations and statutes, such that
there would be differences between how these payment systems apply wage
index policies including geographic reclassification, or the rural
floor. Section 4410(a) of the Balanced Budget Act of 1997 provides that
the area wage index applicable to any hospital that is located in an
urban area of a state may not be less than the area wage index
applicable to hospitals located in rural areas in that State. This
rural floor provision is specific to hospitals. The reclassification
provision at section 1886(d)(10)(C)(i) of the Act states that the
Medicare Geographic Classification Review Board shall consider the
application of any subsection (d) hospital requesting the Secretary
change the hospital's geographic classification for purposes of payment
under the IPPS. This reclassification provision is only applicable to
hospitals as defined in section 1886(d) of the Act. Therefore, we do
not believe that using hospital reclassification data would be
appropriate as these data are specific to the requesting hospitals.
Comment: Some commenters expressed concern that the current wage
index methodology often fails to accurately capture the labor market
realities experienced by rural HHAs. These commenters suggested that
the current wage index ignores drive time, low population density, and
travel expenses that increase rural care costs. One commenter noted
that the wage index for Maine shows a 20 percent urban-rural wage gap
when actual wages differ by less than 5 percent. Another commenter
expressed concern that staff working for rural HHAs drive up to 600
miles a week without adequate mileage reimbursement. A commenter stated
that due to the lower population density, more miles are driven between
patients, increasing both direct costs and indirect costs through lower
productivity.
Response: We appreciate commenters' concerns regarding the wage
index values assigned to rural areas. As discussed in the CY 2022 HH
PPS final rule (86 FR 62285), we do not believe that a population
density adjustment is appropriate at this time. Rural HHAs continually
cite the need for higher reimbursement due to the added cost of
traveling from one patient to the next. However, urban HHAs cite the
need for higher reimbursement due to the added costs associated with
needed security measures and traffic congestion. The home health wage
index values in rural areas are not necessarily lower than the home
health wage index values in urban areas. The home health wage index
reflects the wages that inpatient hospitals pay in their local
geographic areas. Regarding the commenter's concern with the wage index
values assigned to rural Maine versus the wage index values assigned to
Maine's urban CBSAs, we believe that the wage index values are
reflective of the labor costs in each geographic area as they reflect
the costs included on the cost reports of hospitals in those specific
labor market areas. The wage index values are based on data submitted
on the inpatient hospital cost reports. Therefore, as previously
stated, in the absence of home health specific data we believe that the
pre-floor, pre-reclassified hospital wage index is an appropriate proxy
for the home health wage index.
Comment: A commenter stated that although the aggregate effect of
wage index changes may be budget neutral nationally, the distributional
impact can create substantial financial challenges for providers
operating in markets where reimbursement does not align with the costs
of attracting and retaining qualified staff.
Response: We appreciate the commenter's concern that despite the
wage index being budget neural nationally there may be distributional
impacts to individual providers that can create substantial financial
challenges. However, we reiterate that we believe the 5 percent cap on
wage index decreases should provide a degree of predictability in
payment changes for individual providers and allows providers time to
adjust to any significant decreases they may face year to year.
Final Decision: After consideration of public comments, we are
finalizing our proposal to base the HH PPS wage index on the FY 2027
hospital pre-floor, pre- reclassified wage index for hospital cost
reporting periods beginning on or after October 1, 2022, and before
October 1, 2023 (FY 2023 cost report data). The final CY 2027 HH PPS
wage index will include the 5 percent cap on wage index decreases. The
final HH PPS wage index file applicable for CY 2027 (January 1, 2027,
through December 31, 2027) is available on the CMS website at: <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health-pps/home-health-pps-wage-index">https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health-pps/home-health-pps-wage-index</a>.
3. Final CY 2027 Home Health Payment Update
a. Background
The HH PPS has been in effect since October 1, 2000. As set forth
in the July 3, 2000, HH PPS final rule (65 FR 41128), the base unit of
payment under the HH PPS was a national, standardized 60-day episode
payment rate. As finalized in the CY 2019 HH PPS final rule with
comment period (83 FR 56406), and as described in the CY 2020 HH PPS
final rule with comment period (84 FR 60478), the unit of home health
payment changed from a 60-day episode to a 30-day period effective for
those 30-day periods beginning on or after January 1, 2020.
As set forth in Sec. 484.220, we adjust the national, standardized
prospective payment rates by a case-mix relative weight and a wage
index value based on the site of service for the beneficiary. To
provide appropriate adjustments to the proportion of the payment amount
under the HH PPS to account for area wage differences, we apply the
appropriate wage index value to the labor portion of the HH PPS rates.
In the CY 2024 HH PPS final rule (88 FR 77676), we finalized the
rebasing of the home health market basket to reflect 2021 Medicare cost
report data. We also finalized a policy that, for CY 2024 and
subsequent years, the labor-related share is 74.9 percent, and the non-
labor-related share is 25.1 percent. The following are the steps we
take to compute the case-mix and wage-adjusted 30-day period payment
amount for CY 2027:
<bullet> Multiply the national, standardized 30-day period rate by
the patient's applicable case-mix weight.
<bullet> Divide the case-mix adjusted amount into a labor (74.9
percent) and a non-labor portion (25.1 percent).
<bullet> Multiply the labor portion by the applicable wage index
based on the site of service of the beneficiary.
<bullet> Add the wage-adjusted portion to the non-labor portion,
yielding the case-mix and wage adjusted 30-day period payment amount,
subject to any additional applicable adjustments.
We provide annual updates of the HH PPS rate in accordance with
section 1895(b)(3)(B) of the Act. Section 484.225
[[Page 72069]]
sets forth the specific annual percentage update methodology. In
accordance with section 1895(b)(3)(B)(v) of the Act and Sec.
484.225(i), for an HHA that does not submit home health quality data,
as specified by the Secretary, the unadjusted national prospective 30-
day period rate is equal to the rate for the previous calendar year
increased by the applicable home health payment update percentage,
minus two percentage points. Any reduction of the percentage change
will apply only to the calendar year involved and will not be
considered in computing the prospective payment amount for a subsequent
calendar year.
The final claim that the HHA submits for payment determines the
total payment amount for the period and whether we make an applicable
adjustment to the 30-day case-mix and wage-adjusted payment amount. The
end date of the 30-day period, as reported on the claim, determines
which calendar year rates Medicare would use to pay the claim.
We may adjust a 30-day case-mix and wage-adjusted payment based on
the information submitted on the claim to reflect the following:
<bullet> A LUPA is provided on a per-visit basis as set forth in
Sec. Sec. 484.205(d)(1) and 484.230.
<bullet> A partial payment adjustment as set forth in Sec. Sec.
484.205(d)(2) and 484.235.
<bullet> An outlier payment as set forth in Sec. Sec.
484.205(d)(3) and 484.240.
b. Final CY 2027 National, Standardized 30-Day Period Payment Amount
Section 1895(b)(3)(A)(i) of the Act requires that the standard
prospective payment rate and other applicable amounts be standardized
in a manner that eliminates the effects of variations in relative case-
mix and area wage adjustments among different HHAs in a budget-neutral
manner. We stated in the proposed rule that to determine the CY 2027
national, standardized 30-day period payment rate, we would continue
our practice of using the most recent, complete utilization data at the
time of rulemaking; that is, we are using CY 2025 claims data for CY
2027 payment rate updates.
As discussed in section II.C.1. of the CY 2026 HH PPS final rule
(90 FR 55406), we finalized the implementation of a temporary 3.0
percent reduction to the CY 2026 base payment rate that was equivalent
to a final temporary adjustment factor of 0.97000. Per section
1895(b)(3)(D)(iii) of the Act, a temporary adjustment is to be applied
for the applicable year and not included when computing a payment rate
for a subsequent year. In other words, the temporary adjustment factor
for CY 2026 will not be included in the starting payment rate for CY
2027. Therefore, we calculated the CY 2026 national, standardized 30-
day period payment with and without the temporary adjustment factor.
To calculate the CY 2027 national, standardized 30-day period
payment amount, we began with the actual CY 2026 national standardized
30-day period payment amount (with the temporary adjustment factor
included) and applied an adjustment factor of 1.03093 (which is equal
to 1 divided by the CY 2026 temporary adjustment factor of 0.97000) to
remove the temporary adjustment factor as shown in table 12.
[GRAPHIC] [TIFF OMITTED] TR09NO26.026
We applied a case-mix weights recalibration budget neutrality
factor, a wage index budget neutrality factor, the home health payment
update percentage, and a temporary adjustment factor to update the CY
2027 payment rate. As discussed previously, to ensure the changes to
the PDGM case-mix weights are implemented in a budget neutral manner,
we applied a case-mix weight budget neutrality factor to the CY 2027
national, standardized 30-day period payment rate. The proposed case-
mix weight budget neutrality factor for CY 2027 was 1.0045. Based on
updated CY 2025 claims data as of July 14, 2026, the final case-mix
weight budget neutrality factor for CY 2027 is 1.0047.
Additionally, we applied a wage index budget neutrality factor to
ensure that wage index updates and revisions are implemented in a
budget neutral manner. To calculate the wage index budget neutrality
factor, we first determine the payment rate needed for non-LUPA 30-day
periods using the CY 2027 wage index (with the 5 percent cap) so those
total payments are equivalent to the total payments for non-LUPA 30-day
periods using the CY 2026 wage index (with the 5 percent cap) and the
CY 2026 national standardized 30-day period payment rate adjusted by
the case-mix weights recalibration neutrality factor. Then, by dividing
the payment rate for non-LUPA 30-day periods using the CY 2027 wage
index with the 5 percent cap on wage index decreases) by the payment
rate for non-LUPA 30-day periods using the CY 2026 wage index (with the
5 percent cap on wage index decreases), we obtain a wage index budget
neutrality factor of 1.0009. We then apply the wage index budget
neutrality factor of 1.0009 to the 30-day period payment rate.
Next, we update the 30-day period payment rate by the proposed CY
2027 home health payment update percentage of 2.1 percent. As discussed
in section II.C.1. of this final rule, we are finalizing our proposal
to apply the temporary 3.0 percent reduction to the CY 2027 base
payment rate. The proposed temporary adjustment factor is 0.97000. As
discussed previously, per section 1895(b)(3)(D)(iii) of the Act, the
temporary adjustment is to be applied
[[Page 72070]]
for the applicable year and not included when computing a payment rate
for a subsequent year. In other words, the temporary adjustment factor
for CY 2027 should not be included in the starting payment rate for CY
2028. Therefore, we have calculated the CY 2027 national, standardized
30-day period payment with and without the temporary adjustment factor.
The CY 2027 national standardized 30-day period payment rate without a
temporary adjustment is only for illustrative purposes. The actual CY
2027 national standardized 30-day period payment rate includes the
temporary adjustment and is calculated in table 13.
[GRAPHIC] [TIFF OMITTED] TR09NO26.027
The CY 2027 national standardized 30-day period payment rate for an
HHA that does not submit the required quality data will be updated by
0.1 percent (the final CY 2027 home health payment update percentage of
2.1 percent minus 2 percentage points) and is shown in table 14.
[GRAPHIC] [TIFF OMITTED] TR09NO26.028
c. Final CY 2027 National Per-Visit Rates for 30-Day Periods of Care
The national per-visit rates are used to pay LUPAs and are also
used to compute imputed costs in outlier calculations. The per-visit
rates are paid by type of visit or home health discipline. The six home
health disciplines are as follows:
<bullet> Home health aide (HH aide).
<bullet> Medical Social Services (MSS).
<bullet> Occupational therapy (OT).
<bullet> Physical therapy (PT).
<bullet> Skilled nursing (SN).
<bullet> Speech-language pathology (SLP).
To calculate the final CY 2027 national per-visit rates, we started
with the CY 2026 national per-visit rates. Then we applied a wage index
budget neutrality factor to ensure budget neutrality for LUPA per-visit
payments. We calculated the wage index budget neutrality factor by
simulating total payments for LUPA 30-day periods of care using the CY
2027 wage index with the 5 percent cap on wage index decreases and
comparing it to simulated total payments for LUPA 30-day periods of
care using the CY 2026 wage index with the 5 percent cap. By dividing
the total payments for LUPA 30-day periods of care using the CY 2027
wage index by the total payments for LUPA 30-day periods of care using
the CY 2026 wage index, we obtain a wage index budget neutrality factor
of 0.9999. As a reminder, the wage index budget neutrality factors for
the national, standardized 30-day period amount and
[[Page 72071]]
the national LUPA per-visit rates are not equal because they are
calculated differently. The wage index budget neutrality factor for the
LUPA per-visit payments is calculated by simulating total payments for
LUPA 30-day periods while the 30-day period budget neutrality factor is
calculated by simulating payments for non-LUPA 30-day periods.
The LUPA per-visit rates are not calculated using case-mix weights.
Therefore, no case-mix weight budget neutrality factor is needed to
ensure budget neutrality for LUPA payments. Additionally, we are not
applying the permanent adjustment or the temporary adjustment to the
LUPA per-visit payment rates but only to the case-mix adjusted 30-day
payment rate. Lastly, the per-visit rates for each discipline are
updated by the CY 2027 home health payment update percentage of 2.1
percent. The national per-visit rates are adjusted by the wage index
based on the site of service of the beneficiary. The per-visit payments
for LUPAs are separate from the LUPA add-on payment amount, which is
paid for periods that occur as the only period or initial period in a
sequence of adjacent periods. The final CY 2027 national per-visit
rates for HHAs that submit the required quality data are updated by the
final CY 2027 home health payment update percentage of 2.1 percent and
are shown in table 15.
[GRAPHIC] [TIFF OMITTED] TR09NO26.029
The CY 2027 per-visit payment rates for HHAs that do not submit the
required quality data will be updated by 0.1 percent, which is the
final CY 2027 home health payment update percentage of 2.1 percent
minus 2 percentage points and are shown in table 16.
[GRAPHIC] [TIFF OMITTED] TR09NO26.030
We solicited comments on the proposed CY 2027 30-day home health
payment rates and the per-visit payment rates but did not receive
comments on this proposal.
Final Decision: We are finalizing the updates to the CY 2027
national, standardized 30-day period payment rates and the CY 2027
national per-visit payment amounts as proposed, using the final CY 2027
market basket update.
d. LUPA Add-On Factors
Prior to the implementation of the 30-day unit of payment, LUPA
episodes were eligible for a LUPA add-on payment if the episode of care
was the first or only episode in a sequence of adjacent episodes. As
described in the CY 2008 HH PPS final rule, the average visit lengths
in these initial LUPAs are 16 to 18 percent higher than the average
visit lengths in initial non-LUPA episodes (72 FR 49848). LUPA episodes
that occur as the only episode or as an initial episode in a sequence
of adjacent episodes are adjusted by applying an additional amount to
the LUPA
[[Page 72072]]
payment before adjusting for area wage differences.
In the CY 2014 HH PPS final rule (78 FR 72305), we changed the
methodology for calculating the LUPA add-on amount, whereby we
finalized the approach of multiplying the per-visit payment amount for
the first skilled nursing (SN), physical therapy (PT), or speech
language pathology (SLP) visit in LUPA episodes that occur as the only
episode or an initial episode in a sequence of adjacent episodes by 1 +
the proportional increase in minutes for an initial visit over non-
initial visits. Specifically, we updated the analysis using 100 percent
of LUPA episodes and a 20 percent sample of non-LUPA first episodes
from CY 2012 claims data. At that time, we finalized add-on factors:
1.8451 for SN; 1.6700 for PT; and 1.6266 for SLP. In the CY 2019 HH PPS
final rule with comment period (83 FR 56440), in addition to finalizing
a 30-day unit of payment, we finalized our policy of continuing to
multiply the per-visit payment amount for the first SN, PT, or SLP
visit in LUPA periods that occur as the only period of care or the
initial 30-day period of care in a sequence of adjacent 30-day periods
of care by the appropriate add-on factor (using the already established
LUPA add-on factors of 1.8451 for SN, 1.6700 for PT, and 1.6266 for
SLP) to determine the LUPA add-on payment amount for 30-day periods of
care under the PDGM.
In the CY 2025 HH PPS final rule (89 FR 88426 through 88427), in an
effort to enhance the accuracy and relevance of LUPA add-on factors to
reflect current healthcare practices and costs, we finalized updates to
the LUPA add-on factors for PT, SN, and SLP, which had not been revised
since the CY 2014 HH PPS final rule (using CY 2012 claims data). We
finalized using the same methodology to establish the LUPA add-on
amount as used for CY 2014, using updated claims data.
Specifically, in CY 2025, we updated the LUPA add-on factors by
using 100 percent of LUPA periods and a 100 percent sample of non-LUPA
first periods from CY 2023 claims data (as of September 11, 2024). Our
analysis found that the average excess of minutes for the first visit
in LUPA periods that were the only period or an initial LUPA in a
sequence of adjacent periods are 29.91 minutes for the first visit if
SN, 28.08 minutes for the first visit if PT, and 31.57 minutes for the
first visit if SLP. The average minutes for all non-first visits in
non-LUPA episodes are 41.54 minutes for SN, 45.11 minutes for PT, and
47.15 minutes for SLP. To determine the LUPA add-on factors for each
discipline, we calculated the ratio of the average excess minutes for
the first visits in LUPA claims to the average minutes for all non-
first visits in non-LUPA claims. We then added one to these ratios to
obtain the final add on factors. Therefore, beginning in CY 2025 the
final LUPA add on factors for SN, PT, and SLP are 1.7200 for SN; 1.6225
for PT; and 1.6696 for SLP.
Additionally, as outlined in the CY 2025 HH PPS proposed rule (89
FR 55378), in order to implement Division CC, section 115, of the
Consolidation Appropriations Act (CAA), 2021, CMS finalized changes to
the regulations at Sec. 484.55(a)(2) and (b)(3) that allowed
occupational therapists to conduct initial and comprehensive
assessments for all Medicare beneficiaries under the home health
benefit when the plan of care does not initially include skilled
nursing care, but included OT, as well as either PT or SLP (86 FR
62351). This change necessitated the establishment of a LUPA add-on
factor for calculating the LUPA add-on payment amount for the first
skilled OT visit in LUPA periods that occur as the only period of care
or the initial 30-day period of care in a sequence of adjacent 30-day
periods of care. However, at the time of the implementation, we stated
in the CY 2022 HH PPS final rule (86 FR 62289), there was not
sufficient data regarding the average excess minutes for the first
visit in LUPA periods when the initial and comprehensive assessments
are conducted by occupational therapists. Therefore, we finalized a
policy using the PT LUPA add-on factor as a proxy. We also stated in
the CY 2022 final rule that we will use the PT LUPA add-on factor as a
proxy until we have CY 2022 data to establish a more accurate OT add-on
factor for the LUPA add-on payment amounts (86 FR 62289). Ultimately,
we refrained from using CY 2022 data (and instead utilized the PT LUPA
add-on factor as a proxy for the OT LUPA add-on factor), as we marked
the first year that occupational therapists were permitted to conduct
the initial assessment. We wanted to extend our analysis to ensure we
had sufficient data to reflect OT time spent conducting initial
assessments to establish a discrete OT LUPA add-on factor (86 FR
62240).
In the CY 2025 HH PPS final rule (89 FR 88427), we finalized
discontinuing the use of the PT LUPA add-on factor as a proxy and
established a definitive LUPA add-on factor for OT. We used the same
methodology used to establish the LUPA add-on amount for CY 2014, as
described previously for the SN, PT, and SLP add-on factors.
Specifically, we updated the analysis using 100 percent of LUPA periods
and a 100 percent sample of non-LUPA first periods from CY 2023 claims
data. Using updated analysis (as of September 11, 2024), we found that
the average excess of minutes for the first OT visit in LUPA periods
that were the only period or an initial LUPA in a sequence of adjacent
periods is 33.28 minutes for the first visit. The average number of
minutes for all non-first visits in non-LUPA periods is 45.98 minutes
for OT. To determine the LUPA add-on factor for OT to account for the
excess minutes during the first visit in a LUPA period, we finalized
calculating the ratio of the average excess minutes for the first
visits in LUPA claims to the average minutes for all non-first visits
in non-LUPA claims. We then added one to this ratio to obtain the final
add on factor of 1.7238 for OT. Therefore, the OT LUPA factor of 1.7238
is used when occupational therapy is the first skilled visit in a LUPA
period that occurs as the only period or an initial period in a
sequence of adjacent periods.
[GRAPHIC] [TIFF OMITTED] TR09NO26.031
[[Page 72073]]
4. Payments for High-Cost Outliers Under the HH PPS
a. Background
Section 1895(b)(5) of the Act allows for the provision of an
addition or adjustment to the home health payment amount otherwise made
in the case of outliers because of unusual variations in the type or
amount of medically necessary care. Under the HH PPS and the previous
unit of payment (that is, 60-day episodes), outlier payments were made
for 60-day episodes whose estimated costs exceed a threshold amount for
each HHRG. The episode's estimated cost was established as the sum of
the national wage-adjusted per-visit payment amounts delivered during
the episode. The outlier threshold for each case-mix group or PEP
adjustment is defined as the 60-day episode payment or PEP adjustment
for that group plus a fixed-dollar loss (FDL) amount. For the purposes
of the HH PPS, the FDL amount is calculated by multiplying the home
health FDL ratio by a case's wage-adjusted national, standardized 60-
day episode payment rate, which yields an FDL dollar amount for the
case. The outlier threshold amount is the sum of the wage and case-mix
adjusted PPS episode amount and wage-adjusted FDL amount. The outlier
payment is defined as a proportion of the wage-adjusted estimated cost
that surpasses the wage-adjusted threshold. The proportion of
additional costs over the outlier threshold amount paid as outlier
payments is referred to as the loss-sharing ratio.
As we noted in the CY 2011 HH PPS final rule (75 FR 70397 through
70399), section 3131(b)(1) of the Affordable Care Act amended section
1895(b)(3)(C) of the Act to require that the Secretary reduce the HH
PPS payment rates such that aggregate HH PPS payments were reduced by 5
percent. In addition, section 3131(b)(2) of the Affordable Care Act
amended section 1895(b)(5) of the Act by redesignating the existing
language as section 1895(b)(5)(A) of the Act and revised the language
to state that the total amount of the additional payments or payment
adjustments for outlier episodes could not exceed 2.5 percent of the
estimated total HH PPS payments for that year. Section 3131(b)(2)(C) of
the Affordable Care Act also added section 1895(b)(5)(B) of the Act,
which capped outlier payments as a percent of total payments for each
HHA for each year at 10 percent.
As such, beginning in CY 2011, we reduced payment rates by 5
percent and targeted up to 2.5 percent of total estimated HH PPS
payments to be paid as outliers. To do so, we first returned the 2.5
percent held for the target CY 2010 outlier pool to the national,
standardized 60-day episode rates, the national per visit rates, the
LUPA add-on payment amount, and the NRS conversion factor for CY 2010.
We then reduced the rates by 5 percent as required by section
1895(b)(3)(C) of the Act, as amended by section 3131(b)(1) of the
Affordable Care Act. For CY 2011 and subsequent calendar years we
targeted up to 2.5 percent of estimated total payments to be paid as
outlier payments, and apply a 10-percent agency-level outlier cap.
In the CY 2017 HH PPS proposed and final rules (81 FR 43737 through
43742 and 81 FR 76702), we described our concerns regarding patterns
observed in home health outlier episodes. Specifically, we noted the
methodology for calculating home health outlier payments may have
created a financial incentive for providers to increase the number of
visits during an episode of care in order to surpass the outlier
threshold and simultaneously created a disincentive for providers to
treat medically complex beneficiaries who require fewer but longer
visits. Given these concerns, in the CY 2017 HH PPS final rule (81 FR
76702), we finalized changes to the methodology used to calculate
outlier payments, using a cost-per-unit approach rather than a cost-
per-visit approach. This change in methodology allows for more accurate
payment for outlier episodes, accounting for both the number of visits
during an episode of care and the length of the visits provided. Using
this approach, we now convert the national per-visit rates into per 15-
minute unit rates. These per 15-minute unit rates are used to calculate
the estimated cost of an episode to determine whether the claim would
receive an outlier payment and the amount of payment for an episode of
care. In conjunction with our finalized policy to change to a cost-per-
unit approach to estimate episode costs and determine whether an
outlier episode should receive outlier payments, in the CY 2017 HH PPS
final rule we also finalized the implementation of a cap on the amount
of time per day that would be counted toward the estimation of an
episode's costs for outlier calculation purposes (81 FR 76725).
Specifically, we limit the amount of time per day (summed across the
six disciplines of care) to 8 hours (32 units) per day when estimating
the cost of an episode for outlier calculation purposes.
In the CY 2017 HH PPS final rule (81 FR 76724), we stated that we
did not plan to re-estimate the average minutes per visit by discipline
every year. Additionally, the per unit rates used to estimate an
episode's cost were updated by the home health update percentage each
year, meaning we would start with the national per visit amounts for
the same calendar year when calculating the cost-per-unit used to
determine the cost of an episode of care (81 FR 76727). We stated that
we would continue to monitor the visit length by discipline as more
recent data becomes available and may propose updating the rates as
needed in the future.
[…truncated; see source link]Indexed from Federal Register on November 9, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.