Home Health Proposed Rule: Financial Breakdown (CY 2025) 

The Centers for Medicare & Medicaid Services (CMS) proposed CY 2025 home health payments rule presents potential cuts and adjustments. This comprehensive analysis breaks down the proposed Medicare payment updates and behavioral adjustments and their potential impact on home health providers. Whether you're a home health agency leader, financial officer, or compliance specialist, this guide provides essential insights to help you navigate the proposed changes and prepare for the upcoming year in home health care. 

As the industry faces ongoing challenges, including staffing shortages, rising operational costs, and increasing Medicare Advantage enrollment, understanding these proposed changes is crucial for maintaining financial stability and ensuring quality patient care.  We hope you find this overview useful. Please do not hesitate to reach out to us with any questions.  

*Need help understanding these proposed updates? Visit our webinars page and find the Home Health Proposed Rule 2025 webinar under 'Consulting' to learn about the key changes from our experts, J’non Griffin, RN MHA, HCS-D, HCS-H, HCS-C, HCS-O, COS-C, SVP of Compliance and Coding, and Brian Harris, VP of Financial Consulting.

Key Points of the CY 2025 Home Health Proposed Rule 

Proposed Payment Update:  

  • Home health organizations nationwide are facing a relentless rise in costs. Staffing shortages, a surge in Medicare Advantage enrollment (over 51% nationally), lingering effects of COVID-19, inflation exceeding 3%, and spiking mileage, supply, and vendor costs are squeezing margins. Despite these challenges, the Centers for Medicare & Medicaid Services (CMS) proposed decreasing Medicare reimbursement rates for 2025 in its proposed rule issued on June 26, 2024. This proposal would reduce overall Medicare payments to HHAs by 1.7% ($280 million in 2025), with the national base rate dropping from $2,038.13 in 2024 to $2,008.12 in 2025. 

Behavior Adjustment:  

  • Most of the industry outcry is centered on the application of a behavioral-based payment reduction known as the behavioral adjustment. This reduction is largely responsible for the 1.7 percent decrease in Medicare payments. 
  • The behavioral adjustment is statutorily required by the Bipartisan Budget Act of 2018 and requires a six-year monitoring period for the Patient-Driven Grouping Model (PDGM), the payment model implemented for Medicare in 2020. It calls for temporary and permanent payment adjustments to account for expected changes as agencies adapt to the PDGM payment model. 
  • CMS instituted the first behavioral adjustment in 2019, expecting that PDGM would drive changes in clinical group coding, comorbidity coding, and visit utilization due to the new low utilization payment adjustment (LUPA) thresholds. However, the behavioral adjustment methodology used by CMS has been widely scorned in the industry, with National Association for Home Care & Hospice (NAHC) President William Dombi calling it “fatally flawed.” 
  • In the CY 2023 HH PPS final rule CMS determined a permanent adjustment was needed from 2020 and 2021 claims. CMS finalized implementing half (-3.925%) of the permanent payment adjustment estimated at the time (-7.85%). 
  • In the CY 2024 HH PPS final rule, CMS determined that a permanent adjustment was needed from 2022 claims and finalized implementing half (-2.890%) of the permanent payment adjustment estimated at the time (-5.779%). The estimated payment adjustment included the remaining -.3.925% that was not applied to the 2023 payment rate. 
  • For the CY 2025 HH PPS proposal rule, CMS utilized the 2023 claims to determine and propose a –4.067% behavioral adjustment to the 30-day payment rate. 
    • CMS has proposed an updated 2.5 percent home health payment percentage (a $415 million overall increase). 
    • However, the combination of the proposed behavioral adjustment ($595 million decrease) and an additional 0.6% decrease that reflects a proposed fixed-dollar-loss ($100 million decrease), as well as the case-mix weights and wage index budget neutrality factors combine for a 1.7% reduction ($280 million decrease) in Medicare payments for 2025. 

Overall Impact of the CY 2025 Home Health Prospective Payment System Rate  

Estimated Decrease in Payments:  

CMS's proposed rule for Calendar Year (CY) 2025 cuts the national 30-day periodic rate to $2,008. This is the lowest rate since 2021 ($1,901) and represents only a meager $3 increase from 2023. This proposal raises a critical concern: how can Medicare justify such low rates for home health agencies when they face a perfect storm of escalating costs? 

  • Staffing Shortages: The industry grapples with a severe staffing shortage, leading to exponential growth in clinical wages. High bonus payouts are necessary to attract and retain qualified staff. 
  • Inflation: Inflation has consistently risen above 3.4% over the past four years, further squeezing margins. 
  • Rising Expenses: Mileage, vendor expenses, and essential supplies have continuously increased prices. 

Given these challenges, home health organizations must become revenue and collection optimization experts across all payers. Implementing effective expense management strategies will be crucial to maintaining profitability under the proposed Medicare payment structure. 

Maximization Opportunities: 

  • Revenue maximization can be attained by evaluating your internal Coding and OASIS review practices for all episodic payers within your organization to ensure we are capturing and presenting the true acuity and resource utilization of the home health patients we are servicing. This includes reviewing primary and secondary diagnoses as well as the functional activities of daily living that factor into reimbursement. 
  • Another opportunity for revenue maximization is to improve your quality outcomes, hospitalizations, and patient satisfaction scores under the home health value-based purchasing program. Agencies that outperform their competitors or improve versus their 2022 baseline scores can have a positive payment adjustment on their future remittances. It is important to remember the 2025 Medicare payments will have a VBP adjustment based on your 2023 performance.  
    • Did you know? In 2023, a Pennsylvania homecare agency faced a significant challenge in Value-Based Purchasing (VBP) metrics, particularly within OASIS measures.  Using targeted education, they increased Star Ratings and VBP scores substantially.  
  • Revenue cycle optimization is another opportunity to maximize revenue by ensuring home health agencies reach best practices in their ability to collect the payments due for services provided. This requires evaluating the entire revenue cycle, including leadership, patient intake, insurance verification and authorization, order management, and billing and collections. 
  • Expense management should be evaluated by looking at gross and net margin performance versus recommended best practices. An overall operational assessment can determine if there are opportunities to increase clinical and administrative productivity, improve scheduling practices, and assess vendor costs to determine all areas for expense management. Learn more about how consulting services could benefit you.  

Looking Beyond the Cuts 

  • CMS now has sufficient claims data to establish equitable compensation for all home health services and is proposing to establish a definitive occupational therapy (OT) LUPA add-on factor and discontinue the temporary use of the physical therapy (PT) LUPA add-on factor for Start of Care periods where an OT performs the initial visit and completes the OASIS. CMS has proposed the OT LUPA add-on factor at 1.7266 for CY 2025. This represents an increase from the temporary PT LUPA add-on factor in CY 2024, which is 1.6700 
    • CMS has proposed a decrease to the PT LUPA add-on factor for CY 2025 at 1.6247, down from 1.6700 in 2024 
    • CMS has proposed a decrease to the SN LUPA add-on factor for CY 2025 at 1.7227down from 1.8451 in 2024 
    • CMS has proposed an increase to the ST LUPA add-on factor for CY 2025 at 1.6703, up from 1.6266 in 2024 
  • CMS is proposing an annual recalibration of the case-mix weights—including the functional levels and comorbidity adjustment subgroups—and LUPA thresholds using CY 2023 data to more accurately reimburse based on the resource use of patients HHAs are serving.   
  • The CY 2025 proposed rule includes updates to the home health wage index and adopts the new labor market delineations from the July 21, 2023, OMB Bulletin. This results in several significant changes and will significantly impact the localized payment rates in multiple CBSAs nationwide. The new labor market delineations reflect the reality of population shifts and labor market conditions. CMS regulations limit one-year wage index decreases to 5%, which will help mitigate the impact on certain CBSAs that have a proposed significant decrease in their wage index from CY 2024 to CY 2025. 

Condition of Participation Changes 

  • Proposed updates include requiring reporting for agencies related to their timely initiation of care in accordance with 484.105. 
    • This will require agencies to develop, implement, and maintain an acceptance-to-service policy that is consistently applied to each prospective patient referred for home health care. 
    • The policy would be reviewed annually. The policy would cover case load, case mix, and staffing levels. 
    • This will also allow agencies to make public information about services, their duration, frequency, and any limitations. 

Request for Information (RFI) on Rehabilitative Therapists Conducting the Initial and Comprehensive Assessments 

  • Current CoP’s at 484.55 required a registered nurse to conduct an initial assessment visit to determine the patient's immediate care and support needs within 48 hours if nursing was ordered on the referral. 
  • CMS is seeking comment if stakeholders feel it should shift its longstanding policy and permit all classes of therapists (PT, OT, SLP) to conduct the initial assessment and comprehensive assessment for cases that have both therapy and nursing services ordered as part of the plan of care. 

New HH QRP items for consideration 

  • As CMS has identified that social determinants of health and population health management are becoming more critical to client outcomes, CMS is proposing to collect four additional items as part of the standardized patient assessment data elements (SPADES) and replace one current item beginning for the CY 2027 HH QRP. 
    • 1 item on the living situation 
    • 2 items of food insecurity 
    • 1 item on utilities 
    • Revise the transportation item 

Removing the suspension of OASIS all-payer data collection 

  • Voluntary January 1, 2025 
  • Mandatory July 1, 2025 

Request for Information (RFI) on Future Performance Measure Concepts for the Expanded HHVBP Model 

  • CMS is including in the proposed rule an RFI that would build on input from the Expanded Home Health Value-Based Purchasing (HHVBP) Model’s Implementation and Monitoring Technical Expert Panel (TEP). The TEP has discussed potential future measure concepts that could fill gaps identified in the finalized CY 2025 model. These include function measures that would complement the new discharge (DC) function measure and bathing and dressing, which are important for home health patients and are currently included in the PDGM payment model. CMS may consider adding the existing Medicare Spending per Beneficiary measure in future updates to the HHVBP model. Other potential future measures may include caregiver status and claims-based falls with major injuries. 
  • The TEP committee is asking interested parties for feedback on four concepts for the HH QRP based on the Universal Foundation of quality measures. 
    • Composite of vaccinations 
    • Depression 
    • Pain management 
    • Substance use disorders 

Conclusion – Key Takeaways from the CY 2025 Home Health Prospective Payment System Proposed Rule 

The CY 2025 Home Health Prospective Payment System Proposed Rule presents significant challenges for home health agencies. The proposed 1.7% decrease in Medicare payments, driven largely by the -4.067% behavioral adjustment, could have substantial financial implications for providers already grappling with rising costs and operational pressures. 

Key takeaways include: 

  • The proposed national base rate reduction from $2,038.13 in 2024 to $2,008.12 in 2025 
  • The ongoing controversy surrounding the behavioral adjustment methodology 
  • Potential impacts on agency revenue and operational strategies 

As the industry navigates these proposed changes, home health leaders must stay informed, engage in advocacy efforts, and prepare their organizations for potential financial adjustments. Understanding the nuances of the PDGM case-mix weight recalibration, LUPA updates, and CoP changes will be essential for maintaining compliance and financial stability. 

While these proposed cuts are concerning, they also underscore the importance of optimizing operations, ensuring accurate documentation, and implementing robust financial management strategies. By staying proactive and adaptable, home health agencies can position themselves to weather these challenges and continue providing high-quality care to their communities. 

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Looking to learn more? Visit our webinars page and find the Home Health Proposed Rule 2025 webinar under 'Consulting' to know about the key changes from our experts, J’non Griffin, RN MHA, HCS-D, HCS-H, HCS-C, HCS-O, COS-C, SVP of Compliance and Coding, and Brian Harris, VP of Financial Consulting.

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