Home Health PPS
The Home Health Prospective Payment System (HH PPS) is the method Medicare uses to pay home health agencies a predetermined, case-mix adjusted amount for each unit of care rather than reimbursing actual costs. Since January 2020 the unit of payment has been a 30-day period under the Patient-Driven Groupings Model (PDGM). Annual rulemaking updates the base rate, case-mix weights, wage index, and LUPA thresholds.
From cost-based payment to prospective payment
Before 2000, Medicare reimbursed home health agencies based on reported costs, which rewarded volume and invited abuse. The Balanced Budget Act of 1997 mandated a prospective system, and HH PPS took effect October 1, 2000, paying a fixed amount per 60-day episode adjusted for patient characteristics. For two decades the case-mix model included therapy visit thresholds that paid more for episodes with more therapy visits. PDGM replaced that model in January 2020. It cut the payment unit to 30 days, eliminated therapy thresholds, and rebuilt case-mix around clinical characteristics, sorting each period into one of 432 payment groups.
How a 30-day payment is built
Each 30-day period is assigned a payment group based on five variables: admission source (community or institutional), timing (early for the first 30-day period, late for subsequent ones), one of 12 clinical groupings from the principal diagnosis, one of three functional impairment levels drawn from OASIS items, and a comorbidity adjustment of none, low, or high. The resulting case-mix weight multiplies the national standardized base rate, and the labor portion is adjusted by the wage index for the patient's location. Adjustments then apply: periods below the LUPA threshold are paid per visit, partial episode payment (PEP) adjustments prorate transfers and early discharges with readmission, and outlier payments supplement unusually costly periods.
Annual updates and the CY2026 rule
CMS updates HH PPS every year through rulemaking. The CY2026 final rule reduces aggregate Medicare home health payments by an estimated 1.3 percent, roughly $220 million versus CY2025. That nets a +2.4 percent payment update against a -1.023 percent permanent behavioral adjustment, a -3.0 percent one-year temporary adjustment, and a small update to the outlier fixed-dollar-loss ratio. CMS also recalibrated case-mix weights, functional levels, comorbidity subgroups, and LUPA thresholds using CY2024 data. Because behavioral adjustments recur and CMS still holds unrecouped temporary adjustments, agencies should treat rate pressure as structural and plan margins accordingly.
What operators should watch each year
The annual rule moves more than the headline rate. Model these components against your own book of business:
- Case-mix weight recalibration, which can shift revenue by clinical grouping even when the base rate rises
- LUPA threshold changes, which can turn last year's safe visit plans into per-visit payments
- Wage index changes in your counties
- Remaining temporary behavioral adjustments CMS has yet to collect
A 1.3 percent aggregate cut is an average. An agency concentrated in the clinical groupings or thresholds that moved can see a materially different result, so run the rule against your actual patient mix.
Frequently asked questions
Is PDGM the same thing as Home Health PPS?
Not exactly. HH PPS is the overall prospective payment system in place since 2000. PDGM is the case-mix methodology used within HH PPS since January 2020 to classify 30-day periods and set payment weights.
Does Home Health PPS apply to Medicare Advantage patients?
No. Medicare Advantage plans negotiate their own payment terms with agencies, commonly per-visit rates or case rates. HH PPS governs traditional Medicare fee-for-service payment only, though some plans reference its structure in contracts.
Are 60-day episodes gone under HH PPS?
Certification periods remain 60 days, with recertification required for continued care. Payment, however, is made in 30-day periods, so each certification period contains two payment periods.