The 2027 Medicare home health proposed payment rule dropped yesterday, and it was a surprising one.

The home health industry has become accustomed to years of proposed cuts – but this one featured an aggregate rate increase. In the last two proposed rules, CMS floated aggregate cuts of 6.4% and 1.7%, making the 2027 proposal a welcome change.

As the industry continues to parse through the changes CMS proposed yesterday, there is much to dig into. The proposal included a provision of home health palliative care services, a request for information on a home health-specific wage index and revisions to better align the Home Health (HH) Quality Reporting Program (QRP) and the Home Health Value-Based Purchasing (HHVBP) Model.

I’m excited to continue to talk with experts about these and other provisions — but first, let’s talk money and fraud.

The proposed aggregate rate increase is certainly good news, and experts have aligned around that. They’ve also aligned on the fact that the proposed rate increase does not capture the full scope of the rate shifts CMS is suggesting. The -3% temporary rate adjustment represents CMS’ continued efforts to continue recoupments under the premise that the agency overpaid home health providers $4.9 billion. These annual recoupments threaten providers’ margins.

Along with the tension of good and bad payment news, the proposed rule includes several fraud-focused action items that represent an aggressive approach to crushing fraud. While experts are still digging into the proposed fraud changes and support the agency’s overall desire to root out bad actors, these proposed actions spell heightened potential for compliant providers to get inadvertently caught up in the fraud enforcement net.

In this week’s exclusive, members-only HHCN+ Update, I outline the proposed payment and fraud changes included in the CY2027 Medicare home health payment rule, offering analysis and key takeaways, including:

– The tension undercutting the good news of an aggregate rate bump

– What the fraud measures could mean for compliant providers

– A look at the history of proposed vs. final rules and the unknowns facing the industry

A welcome shift and underlying tension

Straight off the bat, for me, the most notable component was that the proposed rule included a payment increase. That’s a clear shift from the last several years of CMS’ proposals.

And industry advocacy groups welcomed the change of pace:

• “The  2.4% payment increase and decision to forgo a permanent behavioral adjustment for CY2027 — sparing home health agencies from yet one more reduction that would have compounded the financial pressure of recent years — are positive proposals from the Centers for Medicare and Medicaid Services (CMS),” said Katie Smith Sloan, president and CEO of LeadingAge.

• “CMS proposes an overall increase of 2.4% or $420 million in payments to home health agencies for 2027, a positive step made possible in part by the Alliance’s ongoing advocacy for the sustainability of the home health benefit,” read a statement from the National Alliance for Care at Home. “The Alliance acknowledges and appreciates the headway made with CMS in understanding the true cost of delivering home health care and the value it provides to the millions of Americans who depend on it.”

Hillary Loeffler, vice president of policy and regulatory affairs at the Alliance, told me this morning that her initial reaction was “very optimistic.”

“It seems like CMS is trying to turn a page and they are no longer going to implement permanent adjustments,” Loeffler said.

There’s another side to this coin, however. Experts, including Loeffler, pointed out that past adjustments have created an insufficient reimbursement environment.

“The 2.4% update does not fully keep pace with current labor and operating cost pressures, which are keenly felt after years of payment cuts,” Sloan said in her statement. “Compounding this impact is CMS’ proposal to both continue with temporary recoupments and to maintain the permanent behavioral adjustments based on CY2020-22 data — which should be re-examined and CMS should eliminate all permanent and temporary adjustments as a result. Without further changes, roughly $4.9 billion in temporary adjustment dollars remain to be collected in the coming years, which sets up a grim cumulative financial trajectory for the sector.”

A 3% temporary decrease is much preferable to a permanent cut, Loeffler said, but still is a blow to the industry.

“What’s looming is 3% temporary being a factor for 10 years before CMS recoups that $4.9 billion, which for us is an extremely long time frame and just continues the concerns about payments not being sufficient to cover costs for the next decade, which, in our opinion, is untenable for the industry,” she said.

The proposed rule provides a net increase for providers, but the journey to convince CMS that its methodology is flawed continues, as does the effort to show that providers’ margins are not as generous as the Medicare Payment Advisory Commission (MedPAC) presents.

Fraud fears could be realized

Before I get on my fraud soapbox, it’s worth underscoring that experts are still sifting through the proposed program integrity components included in the proposed rule. The changes are very technical and nuanced, Loeffler told me, but at first blush, they seem to represent an aggressive shift to more readily revoke providers’ enrollment in the Medicare program.

And the changes would impact everyone, not just home health providers. They would apply to any providers or suppliers participating in the Medicare program.

“There are a lot of disclosure requirements that they’re proposing, which give a lot of opportunity for mistakes during the enrollment process,” Loeffler said. “CMS in the regulations that they proposed would be pretty aggressive in revoking providers for these mistakes, and when that happens, these providers are going to potentially be facing a 10-year re-enrollment bar, and if these providers have other provider numbers that are enrolled in the Medicare program, it implicates their other business lines and provider numbers as well. So we’re pretty concerned.”

That is, a paperwork error during enrollment could trigger a decade-long ban from Medicare and jeopardize every other Medicare provider number a company holds. The collateral damage could be existential for multi-line operators.

After seeing so many astringent fraud-focused efforts from the second Trump administration, I’m not surprised that the proposed rule sharpens the program integrity stick, but it doesn’t bode well for the industry.

The fraud focus in the final rule is compounded by the home health Medicare enrollment moratorium and other efforts, like the Comprehensive Regulations To Uncover Suspicious Healthcare (CRUSH) program. 

There’s reason to believe that the moratorium will be extended beyond the initially prescribed six-month time frame, so these efforts could compound. So even as providers get a Medicare pay bump — though many say it is insufficient given the history of pay cuts — they will also face heightened scrutiny and increased consequences, prompting more investments in compliance programs and PR efforts.

Proposed vs. final rule trends

CMS’ decisions on home health payment rules have typically followed a similar pattern. The proposed rule often includes a dramatic payment cut or slim increase— none more dramatic than the 2026 CY proposed rule — and then the final rule looks generous by comparison.

This cycle creates a sense of relief when the final rule is released. The industry’s shoulders collectively relax, but it’s not because the final rule is sufficient to meaningfully improve margins in an industry troubled by inflationary pressures, increased Medicare Advantage penetration and staffing shortages.

The CY2027 proposed rule disrupts the playbook from the last few years. The question is whether CMS will follow through, or even exceed, its starting position.

Precedent offers a ray of hope. In 2022, the last time CMS proposed an increase, the agency started at 1.7% and finalized at 3.2% — nearly doubling the initial offer. I think there’s room for CMS to sweeten the 2027 final rule.

However, the 2022 increase was driven primarily by spiking inflation that precipitated an upward adjustment of the market basket forecast. While inflation remains a hot-button issue, the post-pandemic surge of 2022 is not likely to be repeated this year.

Still, the divergence between proposed and finalized rates over recent years underscores how crucial the public comment period is – and wherever CMS lands on the final 2027 rule, this period offers a prime opportunity for industry stakeholders to make their case for payment policy changes. Industry stakeholders should seize the opportunity, even if the latest proposed rule has not ignited the same level of concern as last year’s.