Home Care and PACE Organizations
HHVBP, AHEAD, and the LTSS Policy Moment
The home is becoming the default site of care. The policy signals are consistent across every major reform track: AHEAD incentivizes hospitalization avoidance, FIDE SNP requirements mandate LTSS coordination, HHVBP links home health payment to quality outcomes, and OBBBA’s rural health provisions include PACE expansion funding. Every major payment model reform running simultaneously is pointing at the same organizational infrastructure: home health agencies, non-medical home care organizations, and PACE programs.
The organizations that have built the capacity to deliver clinical care in the home are at the center of a policy moment that could either expand their role materially or expose the structural fragility that has always existed beneath it. That fragility is workforce. The home care workforce crisis is not a contextual problem to be noted alongside the policy analysis. It is the binding constraint on every model’s execution, and no amount of payment model redesign resolves a labor market problem that payment model redesign did not create.
The Home Health Agency Landscape#
The Medicare-certified home health market entered 2025 in a state of unprecedented ownership concentration. Optum’s acquisition of LHC Group closed in 2023, and the contested acquisition of Amedisys, which required Department of Justice review and ultimately closed with divestitures in specific markets, combined the two largest independent home health operators under the same corporate parent that also operates the largest Medicare Advantage plan. The combined Optum home health entity became the largest Medicare-certified home health operator in the country by a margin that has no historical parallel in the industry.
The antitrust dimensions are documented in DOJ filings and academic commentary. The concern is not simply that Optum is large. It is that Optum’s home health operations sit within a vertically integrated enterprise that also includes the physicians who generate post-acute referrals, the PBM that manages pharmacy costs for patients transitioning home from hospital, and the MA plan that determines whether home health is authorized and at what visit intensity. A referral relationship between an Optum physician and an Optum home health agency is not the same market transaction as a referral from an independent physician to an independent agency. Whether CMS and DOJ have sufficient regulatory tools to address vertical referral concentration in home health is an open question that the Amedisys acquisition process did not fully resolve.
The Amedisys divestitures required as conditions of DOJ approval created a set of sold or spun-off operations in specific geographic markets. Those divested operations are now independent or under new ownership in markets where Optum’s combined position exceeded antitrust thresholds. The competitive significance of those divestitures depends on whether the buyers have the capital and operational capacity to build genuine alternatives to the Optum infrastructure in those markets, or whether the divestitures produced nominal independence without functional competition.
BAYADA Home Health Care is the largest independent home health operator outside the Optum structure. Operating as a nonprofit with an employee ownership model, BAYADA has geographic concentration in the Mid-Atlantic states, particularly New Jersey, Pennsylvania, and Maryland, with significant operations in the Southeast and internationally. BAYADA’s nonprofit structure and employee ownership model create organizational incentives that differ from publicly traded or private equity-owned home health companies: the retained earnings that a publicly traded operator would distribute to shareholders are reinvested in workforce development, benefit improvements, and geographic expansion. Whether that structure translates to better workforce retention and clinical outcomes than investor-owned competitors is an empirical question that BAYADA’s performance data supports, though the comparison is complicated by its geographic concentration in markets with higher baseline wages and different workforce dynamics than Sun Belt markets.
Encompass Health operates a hospital-at-home and inpatient rehabilitation model with a positioning that is analytically distinct from traditional skilled nursing or home health. Its strategy is built on providing post-acute care that substitutes for SNF admission at equivalent or lower cost with better functional outcomes. The AHEAD hospitalization avoidance incentives, the MA plan pressure on post-acute utilization length and intensity, and the beneficiary preference for home-based recovery over institutional care all converge on the Encompass positioning. The clinical question is whether the populations that would otherwise go to SNF are safe candidates for the intensity of home-based care that the hospital-at-home model requires.
HHVBP is now the most direct policy mechanism affecting home health agency financial performance. The national expansion of Home Health Value-Based Purchasing, which CMS implemented beginning in 2023 after years of running the model in nine pilot states, links Medicare payment to quality performance through a scoring methodology that adjusts agency payments up or down based on relative performance on measures spanning clinical outcomes, patient-reported outcomes, and process measures. Early national performance data through 2024 shows a pattern consistent with the pilot years: agencies with robust care management infrastructure, consistent clinical protocols, and higher patient volume generate better quality scores and capture the upward payment adjustments. Smaller agencies, particularly rural agencies serving populations with higher comorbidity and less continuous care relationships, are more likely to receive downward adjustments.
The small agency problem embedded in HHVBP is not an implementation artifact; it reflects a structural measurement challenge. Quality measurement through OASIS data requires sufficient patient volume to produce statistically reliable scores. Agencies below roughly 60 completed quality episodes in a performance period receive suppressed or unreliable quality scores that cannot be used to determine HHVBP adjustments. CMS’s response has been to apply a comparison group adjustment for small agencies, but the underlying problem persists: the agencies most likely to serve rural, isolated, and high-need populations are the agencies for which quality measurement is least reliable and HHVBP payment determination is most uncertain.
Non-Medical Home Care Organizations#
Non-medical home care is the largest segment of the paid caregiving market and operates almost entirely outside Medicare reimbursement. The funding sources are Medicaid LTSS waiver programs, private pay, VA benefits, and the Older Americans Act’s Title III home care services. Medicare covers skilled care, not custodial care, and the personal assistance services that constitute the core of non-medical home care do not meet the skilled care threshold. The beneficiary confusion between what Medicare covers and what non-medical home care agencies actually provide is among the most persistent sources of both financial distress and unmet need in the Medicare population.
The connection to Medicare policy runs through D-SNP integration. FIDE SNP requirements mandate that plans provide or coordinate LTSS benefits for enrolled dual eligibles. Those LTSS benefits, when they include personal care or homemaker services, are delivered through contracted non-medical home care organizations. The D-SNP plan does not directly employ home care aides; it contracts with agencies that do. The quality of the LTSS benefit is therefore a function of the contracted network’s workforce capacity and care delivery consistency, which are constrained by the same labor market dynamics that constrain the rest of the sector.
OBBBA’s Medicaid LTSS funding reductions (MCR-03.01) hit non-medical home care organizations through the state budget channel. States fund personal care attendant programs through Medicaid LTSS waiver authority with federal matching funds. When federal FMAP rates are reduced under OBBBA, states face a choice between absorbing the fiscal impact through their own budgets, reducing program eligibility, or cutting reimbursement rates to personal care agencies. Rate cuts to personal care agencies, which are already operating at narrow margins in most states, translate directly into wage pressure on home care aides, who are already among the lowest-paid workers in the healthcare sector. The convergence of OBBBA funding cuts and the baseline workforce crisis creates a compounding effect that no policy instrument currently in place is designed to address.
Home Instead is the largest non-medical home care franchise in the United States, operating through a franchise model in which independently owned and operated agencies deliver care under the Home Instead brand, training standards, and operational protocols. The franchise model’s relationship to quality standardization is a legitimate analytical question: the brand creates consumer-facing consistency and provides training resources to franchisees, but the employment relationship is between the aide and the independently owned franchise, not with the corporate entity. Wage levels, benefit packages, and workforce management practices vary across the franchise system in ways that the corporate brand does not control. Home Instead’s scale, with operations in over 1,200 communities across the United States, means that workforce dynamics within its franchise network reflect the national home care labor market more directly than any other single organization.
BAYADA’s non-medical division operates alongside its skilled care operations, creating an organizational complexity that is analytically significant. Managing both Medicare-certified skilled home health and Medicaid-funded personal care services within the same organization requires distinct licensing, billing infrastructure, workforce classification, and regulatory compliance frameworks. The operational complexity is real, but so is the potential advantage: an organization that can coordinate skilled and non-skilled care for the same patient has a capability that single-line operators cannot replicate, and the FIDE SNP LTSS coordination requirement is precisely the situation where that coordination capability matters.
BrightSpring Health Services is the publicly traded personal care and pharmacy services company whose positioning at the intersection of medication management and personal care creates a distinctive place in the MA supplemental benefit ecosystem. MA plans covering supplemental pharmacy benefits for high-need dual eligibles need contracted organizations that can coordinate medication adherence with the personal care visit. BrightSpring’s combined pharmacy and personal care infrastructure provides that coordination in a way that pure-play personal care companies cannot. Its public company status makes its financial disclosures available, and those disclosures show the margin structure of non-medical home care operating at scale: thin, workforce-dependent, and sensitive to any increase in the labor costs that constitute the majority of the cost structure.
PACE Organizations#
PACE serves approximately 68,000 participants in approximately 170 programs nationally. The absolute numbers are small relative to the dual eligible population, but the population PACE serves represents the highest-need, highest-cost dual eligibles in the country. Most PACE participants would be in nursing homes without PACE. The program’s cost-effectiveness argument rests on this comparison: PACE’s per-participant spending is high relative to average dual eligible spending, but most PACE participants are not average dual eligibles.
The PACE financial model is the most complete implementation of integrated dual eligible care in the federal program portfolio. Participating organizations receive capitated payments from both Medicare and Medicaid for each enrolled participant. The organization bears full financial risk for all covered services, including hospital care, specialist care, pharmacy, transportation, adult day center services, and all personal care. The interdisciplinary team model, which includes physicians, nurses, social workers, physical and occupational therapists, and transportation staff, is the care delivery infrastructure that produces both the clinical outcomes and the cost management. The model does not work if the team is understaffed or if any member of the team is operating in a different incentive structure from the rest.
PACE organizations cannot operate profitably without staffing the interdisciplinary team. This is the workforce constraint that limits PACE expansion more directly than any regulatory or capital barrier. The program’s team model requires licensed clinical staff in multiple disciplines simultaneously. The workforce crisis in home care is acute for home health aides and personal care attendants, but PACE’s staffing requirements extend up the clinical hierarchy to registered nurses, licensed social workers, physical therapists, and physicians with geriatric competence. The shortage in those categories is less severe than for aides but more limiting for PACE expansion because there is no substitution pathway: a PACE program cannot replace a social worker or an occupational therapist with an aide.
OBBBA’s PACE expansion funding is counterintuitive given the legislation’s broader Medicaid cut orientation. The rural health provisions include capital funding for new PACE program development in rural markets, reflecting the rural nursing home supply problem that OBBBA elsewhere acknowledges without resolving. Rural nursing home closures have accelerated over the past decade as the combination of Medicaid payment inadequacy, workforce scarcity, and declining rural population has made many rural SNF operations unsustainable. PACE is positioned as the alternative: community-based, team-delivered, integrated care that keeps high-need seniors out of nursing homes that in many rural markets no longer exist or are operating at reduced capacity. The workforce requirements for rural PACE expansion are the obvious constraint on whether the capital funding translates to operating programs.
OnLok in San Francisco is the original PACE program, operating since 1973 and serving as the national model from which all subsequent PACE programs were derived. OnLok now functions as both an operating PACE program in its San Francisco markets and as a national technical assistance center for new program development. The technical assistance function is significant for PACE expansion: new programs trying to navigate PACE certification requirements, develop their interdisciplinary team model, and build the administrative infrastructure for dual capitation billing have access to OnLok’s operational knowledge in ways that reduce the development timeline. OnLok’s model has been replicated across the country in programs of varying size and organizational structure, and its technical assistance work is part of the reason the PACE replication rate has been as high as it has given the complexity of the model.
InnovAge is the most analytically visible PACE organization because it is publicly traded. Its 10-K filings provide the clearest public data on PACE economics at scale available in the sector. InnovAge operates PACE programs in Colorado, California, Virginia, and New Mexico, with over 7,000 participants as of 2024. Its financial history includes a compliance crisis in 2021 and 2022 in which CMS and state regulators imposed enrollment freezes on several of its programs following quality-of-care investigations. The enrollment freezes, which prevented InnovAge from admitting new participants at affected programs, had direct financial consequences visible in the company’s public filings and demonstrated the degree to which PACE program financial performance depends on maintaining enrollment growth against the fixed cost infrastructure of the interdisciplinary team. InnovAge’s subsequent compliance investments and its operational recovery through 2023 and 2024 provide the sector’s clearest documented case study in what PACE compliance failure costs and what remediation requires.
LIFE Pittsburgh is UPMC’s PACE operation and the most developed example of health system-sponsored PACE integration. UPMC’s structure, discussed in MCR-12.02, provides LIFE Pittsburgh with the clinical referral network, hospital system relationship, and administrative infrastructure that independent PACE organizations must build from scratch. The integration between LIFE Pittsburgh’s PACE participants and UPMC’s broader clinical system means that specialist referrals, hospital admissions when they occur, and the transitions between PACE-provided services and hospital-provided services operate within the same organizational context rather than across organizational boundaries. Whether this integration advantage translates to measurably better outcomes or lower per-participant costs than independent PACE programs is not documented in publicly available data, but the organizational logic is consistent with the payvider thesis that runs through UPMC’s broader strategy.
ElderServe Health in Louisiana and PACE Southeast Michigan represent the community nonprofit model that constitutes the majority of the PACE program landscape. These organizations operate single or few-program PACE operations embedded in specific communities, without the national scale of InnovAge or the health system sponsorship of LIFE Pittsburgh. Their financial position depends almost entirely on Medicare and Medicaid capitation rates set by CMS and their state Medicaid agency, and their operational viability is directly sensitive to any reduction in state Medicaid LTSS funding. OBBBA’s FMAP changes create the most direct fiscal risk for these organizations of any policy development currently in effect.
The FIDE SNP and PACE continuum reflects two organizational approaches to the same population and similar policy goals. PACE serves dually eligible seniors through a captive interdisciplinary team that provides all covered services. FIDE SNPs serve a similar population through a plan that coordinates contracted community providers. PACE produces tighter integration but serves far fewer people and requires substantial fixed cost infrastructure. FIDE SNPs can scale to larger populations because they use existing community provider networks, but the coordination quality depends on the contracted network’s capacity and the plan’s care management infrastructure. States are choosing between these models based on the local provider landscape, the Medicaid managed care contracting environment, and the political economy of nursing home and home care industry interests. MCR-09.03 and MCR-09.06 address the D-SNP and PACE policy mechanics in detail.
The Workforce Crisis as the Binding Constraint#
Home health aide vacancy rates nationally have exceeded 20 percent in multiple surveys conducted between 2022 and 2025. Personal care attendant turnover rates in many markets exceed 60 percent annually. The numbers are not new, but the gap between the workforce required to deliver the care models that policy is incentivizing and the workforce available to deliver them has never been wider relative to what the policy ambition requires.
The wage comparison is unambiguous. Home health aides and personal care attendants earn median wages in the range of $14 to $16 per hour nationally, with significant regional variation. Comparable retail and food service positions have converged on or exceeded those wage levels in most labor markets since 2021. The recruitment problem is structural: the work is physically demanding, emotionally intensive, involves irregular hours and travel between client locations, and offers limited advancement pathways. The compensation does not reflect those working conditions, and the Medicaid and Medicare reimbursement rates that fund wages have not kept pace with the minimum wage increases and market wage competition that have closed the gap between home care work and less demanding alternatives.
The immigration enforcement environment creates a workforce supply disruption that intersects with the care access problem in specific communities. A meaningful share of the home care workforce in many urban markets consists of immigrants, including recent immigrants and individuals whose documentation status creates vulnerability to enforcement action. The current federal immigration enforcement posture, documented in reporting from 2025 and early 2026, has created community-level fear that affects both workforce participation and elderly immigrant populations’ willingness to allow home care workers into their homes. Both effects reduce the supply of home-based care in the communities that have historically relied on immigrant labor for this workforce.
Medicaid LTSS wage pass-through requirements have been implemented in approximately 20 states, requiring that a specified percentage of Medicaid reimbursement rate increases be passed through to direct care worker wages rather than absorbed into agency operating margins. The evidence on effectiveness shows that wage pass-through requirements do increase direct care worker wages when they are implemented with enforcement mechanisms and when the underlying rate increase is sufficient to fund the pass-through. The OBBBA funding reduction problem is that if the rate increases that fund pass-through requirements are not forthcoming because states are absorbing federal FMAP cuts, there is nothing to pass through. The policy instrument works in a funding expansion environment and is neutralized in a funding contraction environment.
MedPAC’s assessment of home health payment adequacy, reported in the March 2024 and June 2024 reports to Congress, identified the PDGM behavioral adjustment dispute as the central payment adequacy question for home health. CMS implemented PDGM in 2020 with a behavioral assumption that agencies would reduce therapy utilization by a specific amount in response to the payment model change. When agencies reduced therapy by more than the assumed amount, CMS implemented an additional clawback adjustment to recapture the savings it judged to be windfall rather than genuine efficiency. The agency associations have disputed both the behavioral assumption methodology and the clawback’s impact on payment adequacy, arguing that the adjusted payment rates no longer cover the cost of delivering skilled home health visits to the patient populations agencies serve, particularly high-acuity patients with complex wound care, medication management, and rehabilitation needs.
The compression between what Medicare and Medicaid pay for home-based care and what it actually costs to deliver it is not a problem that any single policy instrument can resolve. Payment rates that covered costs in 2018 do not cover costs in 2026 after five years of clinical wage inflation, fuel cost increases for visit-to-visit travel, technology compliance requirements, and the administrative burden of HHVBP quality reporting. The organizations that will survive the current environment are those with sufficient scale to absorb fixed compliance costs, sufficient market position to negotiate MA supplemental benefit contracts that pay above Medicaid floor rates, and sufficient workforce investment to maintain retention rates that keep per-visit delivery costs from escalating through turnover. Those are not characteristics that most home care organizations possess simultaneously.
Related Reading#
MCR-06_05 Aging in Place: The Home Care Industry’s Medicare Policy Moment MCR-05_12 Hospice in Crisis: Benefit Design, Quality Failures, and the Medicare Spending Surge MCR-09_06 PACE at a Crossroads: Cost Profile, Quality Evidence, and the Post-FAI Opportunity