Aging in Place

The home health industry has spent two decades making the argument that home-based care is better, cheaper, and what patients prefer. The policy environment is finally catching up. AHEAD’s global budget structure makes hospitalization avoidance a financial imperative for participating hospitals, and home-based care absorbs the utilization that hospitals are now incentivized to prevent. FIDE SNPs must coordinate long-term services and supports, which run through home care agencies and personal care attendants. ACOs generate shared savings in part by substituting home-based management for inpatient episodes. The home is becoming the default site of care not because of a regulatory philosophy but because every major accountable care structure points toward it economically.

The industry facing this moment has two problems. The first is a payment system that has spent five years fighting over behavioral adjustment clawbacks from the Patient-Driven Groupings Model transition. The second is a workforce that cannot scale fast enough to meet the demand these models assume. Both problems are real, and neither has a clean policy solution on the near-term horizon.

Home Health Value-Based Purchasing

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The expanded Home Health Value-Based Purchasing model is the only CMMI demonstration that has been certified for expansion and applied nationally. That certification matters because it signals that CMS concluded the pilot evidence was sufficient to justify making value-based payment the standard for home health agencies across all 50 states. The expanded model began its pre-implementation year in 2022, ran its first full performance year in CY 2023, and applied payment adjustments based on that performance starting in CY 2025. CY 2026 will reflect CY 2024 performance.

The payment adjustment structure applies a maximum of plus or minus five percent to an agency’s Medicare FFS payments for the year. That swing represents a ten-percentage-point spread between the best and worst performers. For an agency billing $5 million annually in Medicare, the difference between a five-percent bonus and a five-percent reduction is $500,000. The stakes are large enough to change agency behavior, which is the mechanism CMS is relying on.

The measure set has evolved across performance years. For CY 2023 and 2024, the model used twelve measures spanning OASIS-based functional and clinical outcomes, claims-based utilization measures including ED use without hospitalization and potentially preventable hospitalizations, and HHCAHPS patient experience scores. For CY 2025, the measure count dropped to ten with the removal of two HHCAHPS measures. Beginning with performance year CY 2026, the measure set adds four measures: three OASIS-based measures on bathing and dressing function and one claims-based measure, the Medicare Spending per Beneficiary for the Post-Acute Care setting. The MSPB-PAC addition is significant because it introduces a total cost accountability measure alongside the clinical outcome and patient experience measures, raising the stakes for agencies whose patients generate high downstream Medicare spending after discharge.

CMS updated the model baseline year from CY 2022 to CY 2023 in the CY 2026 final rule. The practical effect is that improvement points earned by comparing current performance to an agency’s own prior year baseline are now calculated against more recent performance levels, which have generally improved since the COVID-era disruptions. Agencies that made significant gains off the pandemic-depressed 2022 baseline will find the bar for improvement points reset higher.

Beginning April 2026, HHCAHPS survey changes affect three measures currently in the model. CMS is removing those three measures and replacing the survey instrument, which creates a measurement gap and transition risk for agencies that have structured their patient experience investments around the specific survey domains being retired.

PDGM and Payment Adequacy

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The Patient-Driven Groupings Model replaced the prior home health prospective payment system in 2020, shifting from 60-day episodes to 30-day periods and restructuring case-mix weights around clinical complexity rather than therapy visit volume. The reform was clinically sensible: it corrected incentives that had driven high-therapy-hour care delivery regardless of clinical need. But the transition created a five-year payment dispute that has not fully resolved.

The behavioral assumption saga has been the defining payment fight for the industry since implementation. CMS assumed when it designed PDGM that providers would change their coding and utilization behavior in predictable ways. When actual behavior diverged from those assumptions, CMS concluded that providers had generated windfall payments relative to what the model was supposed to produce. The resulting permanent adjustment has been phased in over multiple years: CMS applied reductions of 3.925 percent in CY 2023, 2.890 percent in CY 2024, and 1.975 percent in CY 2025. The CY 2026 final rule finalized a permanent prospective adjustment of negative 1.023 percent, smaller than the prior phases but still a reduction, and on top of a temporary adjustment that resulted in an aggregate estimated payment decrease of 1.3 percent, or $220 million, for CY 2026 compared to CY 2025.

The industry’s pushback has been sustained and partially persuasive. Commenters on the CY 2026 proposed rule raised the argument that post-2022 coding behavior change was attributable to factors unrelated to PDGM, including the introduction of the OASIS-E assessment instrument and the expansion of HHVBP, rather than to gaming the behavioral assumptions. CMS acknowledged these arguments in finalizing a smaller permanent adjustment than it had originally proposed. But the acknowledgment did not translate into payment restoration, and the cumulative effect of multiple years of below-market updates plus behavioral assumption reductions has left many agencies in a precarious financial position.

MedPAC’s annual home health chapters have consistently documented payment adequacy concerns. The commission has noted that while aggregate Medicare margins for freestanding home health agencies were positive in recent years, the distribution of those margins is highly skewed: large, multistate agencies with operational scale and billing sophistication perform significantly better than small and rural agencies. Payment adequacy at the median or below-median agency is a more concerning picture than the aggregate margin suggests.

AHEAD and Home-Based Care Strategy

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AHEAD’s logic for home health agencies runs through hospitalization avoidance. Under global budgets, a participating hospital’s budget absorbs the cost of every inpatient admission. Admissions it can prevent through effective care transitions and community-based management directly protect the budget. Home health agencies that can reliably absorb patients who might otherwise have been admitted or readmitted become strategically valuable partners.

The referral dynamic changes in an AHEAD state. A hospital operating under volume-based FFS payment sends home health referrals based on clinical discharge criteria and available post-acute options. A hospital managing toward a global budget has an additional financial motivation to refer patients to home health agencies whose performance data demonstrates low readmission rates and reliable discharge-to-community outcomes. The HHVBP model’s quality metrics, particularly the potentially preventable hospitalization measure and the discharge to community measure, become not just regulatory compliance targets but market signals to AHEAD hospital partners.

Home health agencies in AHEAD states that have not yet treated HHVBP performance as a strategic imperative should reconsider. The agencies that accumulate the strongest risk-adjusted quality records during the HHVBP performance years leading into AHEAD implementation will have a documented track record that hospital procurement and care transition teams can use to justify preferred referral relationships. That track record is also the basis for value-based contracting negotiations with ACOs and MA plans. The HHVBP framework is building the performance data infrastructure that will eventually support alternative payment contracting across all payer types.

FIDE SNP Long-Term Services and Supports

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Fully integrated dual eligible special needs plans are required to coordinate long-term services and supports for their enrollees. LTSS coordination spans home and community-based services, personal care attendant programs, adult day services, and the range of non-medical supports that allow dual eligibles to remain in the community rather than transitioning to institutional care. Home health agencies and personal care attendant organizations sit at the center of this coordination infrastructure.

The integration requirement creates contracting leverage that home care organizations have not historically had with payers. A FIDE SNP that cannot demonstrate adequate LTSS coordination will fail its model of care requirements and risk losing its dual eligible special needs plan authorization. The LTSS network is not optional for the plan; it is a regulatory requirement. This creates a genuine negotiating position for home care agencies whose geographic coverage, workforce depth, and quality performance make them necessary partners rather than interchangeable commodity vendors.

The supplemental benefit contraction in Medicare Advantage for 2025 and 2026 creates a complicating dynamic for home-based services that had grown on the back of MA supplemental benefit funding. In-home support, home modifications, and personal care services that MA plans had been offering as supplemental benefits funded through the overpayment premium became cost reduction targets when CMS tightened its oversight of VBID and supplemental benefit generosity. The pullback is more significant for non-skilled personal care services than for Medicare-covered skilled home health, but it reduces the universe of patients receiving home support who might have transitioned to skilled home health for clinical escalations.

The Workforce Crisis

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The workforce constraint is the binding execution risk for every model that assumes home-based care delivery at scale. The Bureau of Labor Statistics consistently projects home health aide and personal care aide positions among the fastest-growing occupations in the United States by absolute number of positions needed, driven by the aging of the population. The gap between projected positions and available workers is not a rounding error. The American Health Care Association and industry groups have documented that turnover rates in home care frequently exceed 60 percent annually, that median hourly wages for home health aides in 2024 ran below $17 nationally with significant regional variation, and that the work itself involves physical demands, emotional labor, and client isolation that accelerate burnout at wage rates that do not compensate for them.

The workforce crisis is directly embedded in the policy models that depend on home-based care. AHEAD assumes that hospitalization-avoiding care management can be executed by a home care workforce that is presently understaffed and underpaid. FIDE SNP LTSS coordination requirements assume personal care attendant availability that does not exist at scale in many markets. ACO care management programs that rely on home visits for their highest-risk patients cannot substitute telehealth or remote monitoring for home-based human presence in populations with functional limitations or limited digital access.

What would address the workforce shortage involves policy levers that sit in different parts of government. Medicaid wage pass-throughs, which direct a portion of Medicaid rate increases to front-line worker wages rather than allowing them to be absorbed into agency overhead, have produced wage increases in the states that have implemented them. Federal legislation to create a similar mechanism for Medicaid home care funding has been proposed but not enacted. Medicare payment reform that explicitly recognizes the labor cost of home care delivery rather than applying behavioral assumption reductions that pressure agency margins from above would stabilize the supply side. Immigration policy that creates legal pathways for care workers to fill positions that the domestic labor market cannot fill at current wages is a structural solution that neither major political coalition has prioritized in the current environment.

In the near term, home health agencies are investing in workforce retention through signing bonuses, scheduling flexibility, training subsidies, and supplemental pay structures that try to hold workers in an occupation where competing employers at higher wage levels are aggressively recruiting from the same pool. These investments are absorbing margin that agencies need to execute quality improvement programs under HHVBP. The dual pressure of payment reductions and workforce investment is compressing the operating environment for agencies of all sizes, and is driving consolidation toward larger multistate platforms with the scale to absorb both.

Related Reading

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MCR-05_09 The Medicare Workforce Crisis: From Physician Fees to Home Health Aides MCR-09_03 Dual Eligible Integration: The FIDE/HIDE/AIP Landscape in 2025 to 2027 MCR-12_05 Home Care and PACE Organizations: HHVBP, AHEAD, and the LTSS Policy Moment