Medicare and Medicaid Programs; Calendar Year 2026 Home Health Prospective Payment System (HH PPS) Rate Update; Requirements for the HH Quality Reporting Program and the HH Value-Based Purchasing Expanded Model; Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program Updates; DMEPOS Accreditation Requirements; Provider Enrollment; and Other Medicare and Medicaid Policies

Under the HH PPS, LUPAs are paid when a certain visit threshold for a payment group during a 30-day period of care is not met. In the CY 2019 HH PPS final rule with comment period (83 FR 56492), we finalized a policy setting the LUPA thresholds at the 10th percentile of visits or two visits, whichever is higher, for each PDGM payment group. This means the LUPA threshold for each 30-day period of care varies depending on the PDGM payment group to which it is assigned. If the LUPA threshold for the payment group is met under the PDGM, the 30-day period of care will be paid the full 30-day period case-mix adjusted payment amount (subject to any partial payment adjustment or outlier adjustments). If a 30-day period of care does not meet the PDGM LUPA visit threshold, then payment will be made using the per-visit payment amounts as described in

section II.E.4.c. of this final rule. For example, if the LUPA visit threshold is four, and a 30-day period of care has four or more visits, it is paid the full 30-day period payment amount; if the period of care has three or fewer visits, payment is made using the per-visit payment amounts.

In the CY 2019 HH PPS final rule with comment period (83 FR 56492), we finalized our policy that the LUPA thresholds for each PDGM payment group will be reevaluated every year based on the most current utilization data available at the time of rulemaking. However, as CY 2020 was the first year of the new case-mix adjustment methodology, we stated in the CY 2021 HH PPS final rule (85 FR 70305 and 70306) that we will maintain the LUPA thresholds that were finalized and shown in table 17 of the CY 2020 HH PPS final rule with comment period (84 FR 60522) for CY 2021 payment purposes. We stated at that time, we did not have sufficient CY 2020 data to reevaluate the LUPA thresholds for CY 2021.

In the CY 2022 HH PPS final rule with comment period (86 FR 62249), we finalized the proposal to recalibrate the PDGM case-mix weights, functional impairment levels, and comorbidity subgroups while maintaining the LUPA thresholds for CY 2022. We stated that because there are several factors that contribute to how the case-mix weight is set for a particular case-mix group (such as the number of visits, length of visits, types of disciplines providing visits, and non- routine supplies) and the case-mix weight is derived by comparing the average resource use for the case-mix group relative to the average resource use across all groups, we believe the COVID-19 PHE would have impacted utilization within all case-mix groups similarly. Therefore, the impact of any reduction in resource use caused by the PHE on the calculation of the case-mix weight will be minimized since the impact will be accounted for both in the numerator and denominator of the formula used to calculate the case-mix weight. However, in contrast, the LUPA thresholds are based on the number of overall visits in a particular case-mix group (the threshold is the 10th percentile of visits or 2 visits, whichever is greater) instead of a relative value (like what is used to generate the case-mix weight) that will control for the impacts of the COVID-19 PHE. We noted that visit patterns and some of the decrease in overall visits in CY 2020 may not be representative of visit patterns in CY 2022. Therefore, to mitigate any potential future and significant short-term variability in the LUPA thresholds due to the COVID-19 PHE, we finalized the proposal to maintain the LUPA thresholds finalized and displayed in table 17 in the CY 2020 HH PPS final rule with comment period (84 FR 60522) for CY 2022 payment purposes.

For CY 2024, we proposed to update the LUPA thresholds using CY 2022 Medicare home health claims (as of March 17, 2023) linked to OASIS assessment data. We believed that CY 2022 data would have been more indicative of visit patterns in CY 2024 rather than continuing to use the LUPA thresholds derived from the CY 2018 data pre-PDGM. Therefore, we finalized a policy to update the LUPA thresholds for CY 2024 using data from CY 2022.

For CY 2025, we proposed to update the LUPA thresholds using CY 2023 home health claims utilization data (as of March 19, 2024), in accordance with our policy to annually recalibrate the case-mix weights and update the LUPA thresholds, functional impairment levels and comorbidity subgroups. Therefore, we finalized the functional points and functional impairment level updates for CY 2025 as proposed, using updated CY 2023 claims data (as of July 11, 2024).

For CY 2026, we proposed to update the LUPA thresholds using CY 2024 home health claims utilization data (using more complete CY 2024 claims data as of July 11, 2025), in accordance with our policy to annually recalibrate the case-mix weights and update the LUPA thresholds, functional impairment levels, and comorbidity subgroups. After reviewing the CY 2024 home health claims utilization data, we determined that LUPA visit patterns in 2024 were similar to visits in 2023 and a total of 18 case-mix groups have a decline in their LUPA threshold of a single visit. The proposed LUPA thresholds for the CY 2026 PDGM payment groups with the corresponding Health Insurance Prospective Payment System (HIPPS) codes and the case-mix weights can be found in the CY 2026 HH PPS proposed rule (90 FR 29145).

We solicited public comment on the proposed updates to the LUPA thresholds for CY 2026. The following is a summary of the comments we received and our responses:

Comment: The majority of the commenters expressed support for the proposed updates to the LUPA thresholds and recognized that these updates are necessary to help align payments more closely with evolving care delivery and improve payment accuracy. However, multiple commenters expressed concern that ongoing upward adjustments to some of the LUPA thresholds seem to be arbitrary and not fully supported by clinical evidence. As such, these commenters recommended that the LUPA thresholds remain static or clinically justified, and that there be an established monitoring system that is able to identify providers with abnormally low LUPA rates in an effort to ensure care delivery reflects medical appropriateness rather than potential payment manipulation.

Response: We thank the commenters for their feedback and their support for the annual update of the LUPA thresholds. Our policy is that the LUPA thresholds for each PDGM payment group will be reevaluated every year based on the most current utilization data available at the time of rulemaking. While the visit patterns and utilization data do not constitute clinical evidence, we note that the LUPA thresholds are annually updated to correspond with the visit patterns associated with each home health resource group, which we do monitor and include in the rule. More specifically, the visit patterns/ utilization data serve as the most accurate method to update the LUPA thresholds, as the LUPA rates correspond to provider behavior that correlates with the visit patterns/utilization data as opposed to clinical standards. We could consider a separate monitoring system for those providers who have abnormally low LUPA rates in future rulemaking. However, this could potentially require collaboration on potential program integrity efforts. We also note that low LUPA rates do not necessarily mean that a provider is acting inappropriately. We believe updating the LUPA thresholds is the most accurate way to reflect the provision of home health visits based on the most current utilization data available at the time of rulemaking.

Final Decision: We are finalizing the proposal to update the LUPA thresholds for CY 2026 using CY 2024 claims data (as of July 11, 2025). The final LUPA thresholds for the CY 2026 PDGM payment groups with the corresponding Health Insurance Prospective Payment System (HIPPS) codes and the case-mix weights are listed in table 8 and are also available on the HHA Center web page, located at https://www.cms.gov/medicare/enrollment-renewal/providers-suppliers/home-health-agency-center. 2. Final CY 2026 Functional Impairment Levels

Under the PDGM, the functional impairment level is determined by responses to certain OASIS items associated with activities of daily living

and risk of hospitalization; that is, responses to OASIS items M1800- M1860 and M1033. A home health period of care receives points based on each of the responses associated with these functional OASIS items, which are then converted into a table of points corresponding to increased resource use. The sum of all these points results in a functional impairment score which is used to group home health periods into a functional level with similar resource use. That is, the higher the points, the more the response is associated with increased resource use, or increased impairment. The three functional impairment levels of low, medium, and high were designed so that approximately one-third of home health periods from each clinical group falls within each level. This means home health periods in the low impairment level have responses for the functional OASIS items that are associated with the lowest resource use, on average. Home health periods in the high impairment level have responses for the functional OASIS items that are associated with the highest resource use on average.

For CY 2026, we proposed to use CY 2024 claims data to update the functional points and functional impairment levels by clinical group. The CY 2018 HH PPS proposed rule (82 FR 35320) and the technical report from December 2016, posted on the Home Health PPS Archive web page, located at https://www.cms.gov/medicare/home-health-pps/home-health-pps-archive, provides a more detailed explanation as to the construction of the functional impairment levels using the OASIS items. We proposed to use the same methodology previously finalized to update the functional impairment levels for CY 2026. The final updated OASIS functional points table and the table of functional impairment levels by clinical group for CY 2026 are listed in tables 8 and 9, respectively. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR02DE25.011

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We solicited public comment on the proposed updates to the functional points and the thresholds for functional impairment levels by clinical group. The following is a summary of the comments we received and our responses:

Comment: Several commenters opposed the proposed updates to the CY 2026 functional impairment points and levels. These commenters described the proposed changes to functional impairment scoring as arbitrary, nontransparent, and reflecting changes that are not aligned with actual patient characteristics. Several of these commenters cited that high acuity patients (providing examples such as beneficiaries with multiple sclerosis) will require constant supervision and are misclassified into low functional levels, which ultimately results in underpayment. Some commenters objected to the division of patients into evenly distributed impairment categories and stated that this approach does not reflect the increasing acuity of all functional levels. Some commenters also questioned whether CMS uses discharge assessments instead of the Start of Care (SOC) OASIS items, which they state leads to potentially misrepresenting resource needs. Some commenters also emphasized that they believe the point value changes in OASIS scoring devalues clinically

significant indicators including indicators such as ambulation or therapy needs, leading to a risk in undermining access to medically necessary services. As such, these commenters suggested that CMS provide greater transparency in methodology, reevaluate impairment thresholds, and incorporate social determinants of health into the scoring process to more accurately capture the complexities of home health patients.

Response: We appreciate the commenters' feedback and recommendations. We note that we proposed and finalized the methodology which utilizes those OASIS items specifically related to functional status, as well as the use of the start of care OASIS for calculating the functional impairment level in the CY 2019 HH PPS final rule (83 FR 56454). At this time, we do not use OASIS items associated with social determinants of health but could consider this in future rulemaking. We use the follow-up OASIS near the time of recertification for the third and fourth 30-day periods of care. This helps to ensure that the functional impairment level is determined to correspond with expected resource use. We do not use the discharge OASIS given the beneficiary would no longer be receiving home health services. Still, we maintain that annual recalibration is vital to ensuring the most accurate and current assessment of the relationship between resource use and functional points, functional impairment levels, comorbidities, utilization thresholds, and case-mix weights. We contend that the use of the most up-to-date data in revising functional impairment levels is integral to ensure that all variables used in the case-mix adjustment process align with the actual costs of delivering home health services. Also, we note that the functional impairment levels are structured so that approximately one-third of periods within each clinical group are assigned to low, medium, and high categories, as this ensures that the case-mix system appropriately reflects differences in functional impairment. This classification of functional impairment has been a fundamental component of the HH PPS since its implementation and remains essential under the PDGM. Previously, the HH PPS grouped home health episodes using functional scores based on functional OASIS items with similar average resource use within the same functional level, with approximately a third of episodes classified as low functional score, a third of episodes classified as medium functional score, and a third of episodes classified as high functional score. Likewise, the PDGM groups home health periods of care using functional impairment scores based on functional OASIS items with similar resource use and have three levels of functional impairment severity: low, medium, and high. However, the PDGM differs from the previous HH PPS functional variable, in that the three functional impairment level thresholds in the PDGM vary between the clinical groups. As such, the PDGM functional impairment structure accounts for patient characteristics within each clinical group that are associated with increased resource use due to functional impairment. This ensures that payment is more accurately aligned with patient characteristics, including beneficiaries who have greater need with activities of daily living (ADLs) and who are more functionally impaired. Updating the functional impairment levels based on the most current OASIS and claims data ensures that the payment system captures changes in functional impairment and the associated increases in resource use. Regardless of whether patients entering home health are more impaired due to shifts in the broader health care system or any other influence, the functional levels capture the relationship between functional status as indicated on the OASIS with resource use captured on claims. While we acknowledge commenters' concerns, we emphasize that the proposed recalibration is designed to strengthen the alignment between payment and patient characteristics, not to diminish access to medically necessary services. As such, updating the functional levels would specifically capture any changes in functional impairment and any changes in resource use associated with ADLs.

Final Decision: We are finalizing the functional points and functional impairment level updates for CY 2026 as proposed, using updated CY 2024 claims data (as of July 11, 2025). 3. Final CY 2026 Comorbidity Subgroups

Thirty-day periods of care receive a comorbidity adjustment category based on the presence of certain secondary diagnoses reported on home health claims. These diagnoses are based on a home-health specific list of clinically and statistically significant secondary diagnosis subgroups with similar resource use, meaning the diagnoses have at least as high as the median resource use and are reported in more than 0.1 percent of 30-day periods of care. Home health 30-day periods of care can receive a comorbidity adjustment under the following circumstances:

High comorbidity adjustment: There are two or more secondary diagnoses on the home health-specific comorbidity subgroup interaction list that are associated with higher resource use when both are reported together compared to when they are reported separately. That is, the two diagnoses may interact with one another, resulting in higher resource use.

Low comorbidity adjustment: There is a reported secondary diagnosis on the home health-specific comorbidity subgroup list that is associated with higher resource use.

No comorbidity adjustment: A 30-day period of care receives no comorbidity adjustment if no secondary diagnoses exist or do not meet the criteria for a low or high comorbidity adjustment.

In the CY 2019 HH PPS final rule with comment period (83 FR 56406), we stated that we will continue to examine the relationship of reported comorbidities on resource utilization and make the appropriate payment refinements to help ensure that payment is in alignment with the actual costs of providing care. For CY 2026, we proposed to use the same methodology used to establish the comorbidity subgroups to update the comorbidity subgroups using CY 2024 home health data with linked OASIS data.

For CY 2026, we proposed to update the comorbidity subgroups to include 20 low comorbidity adjustment subgroups and 100 high comorbidity adjustment interaction subgroups. The proposed CY 2026 low comorbidity adjustment subgroups and the high comorbidity adjustment interaction subgroups including those diagnoses within each of these comorbidity adjustments was included in the CY 2026 HH PPS proposed rule (90 FR 29136).

We solicited comments on the proposed updates to the low comorbidity adjustment subgroups and the high comorbidity adjustment interactions for CY 2026. Using more updated claims data (as of July 11, 2025), for CY 2026 there are 20 low comorbidity subgroups, and 98 high comorbidity subgroups as shown in tables 10 and 11. BILLING CODE 4120-01-P

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The following is a summary of the comments we received and our responses:

Comment: Commenters broadly expressed support for CMS's proposal to implement the proposed low and high comorbidity adjustments using CY 2024 claims data. Commenters stated these adjustments would result in more accurate payments, reflecting the resources required to effectively manage patients with these conditions. Additionally, commenters indicated that the proposed changes to the comorbidity subgroups should reflect the actual costs of providing care.

Response: We thank commenters for their support.

Comment: A commenter expressed concern for the elimination of certain diabetic subgroups and the removal of Endocrine 2 from the low comorbidity list, citing that these actions may result in adverse consequences for

beneficiaries that require intensive diabetes management. Another commenter recommended that CMS expand subgroup coding logic to include additional conditions such as rheumatic mitral and aortic valve disease, diabetes with mononeuropathy, and cystitis. Several commenters also raised concerns about inconsistencies with the high comorbidity pairings specifically as it relates to instances in which certain behavioral and circulatory conditions are paired with only one skin subgroup, Skin 3 or Skin 4, despite comparable clinical risks. As such, these commenters recommended CMS expand pairings to better capture patient complexity and increase the alignment for current comorbidity adjustments so that there is arguably a more adequate reflection to the costs of patients with multiple chronic conditions in an effort to reduce systematic underpayment and potential access barriers. One commenter suggested refining the case-mix adjustment methodology, particularly as it related to the admission source variable and suggested that shifts from inpatient to outpatient and ambulatory surgical center settings alter the distribution of clinical complexity in ways not fully reflected in historical data.

Response: We appreciate commenters' review of the proposed comorbidity subgroup refinements. As outlined in the CY 2020 final rule with comment period (84 FR 60510) and further detailed in the technical report Overview of the Home Health Groupings Model,\13\ the home health specific comorbidity list is a result of principles of patient assessment by providers, as well as the evaluation of body systems and their associated diseases, conditions, and injuries, as this framework was specifically used to develop the clinically relevant categories that resultingly identify relationships that are tied to increased resource usage. We also acknowledge commenters' concerns regarding the elimination of certain diabetic subgroups and the removal of Endocrine 2 from the low comorbidity list. However, we remind commenters that only the subgroups of diagnoses representing more than 0.1 percent of periods of care, and demonstrating at least the median resource use, will qualify for a low comorbidity adjustment. That said, the specific subgroups, including rheumatic mitral and aortic valve disease, diabetes with mononeuropathy, and cystitis, that do not meet these statistical and utilization thresholds ultimately do not qualify for inclusion in the payment adjustment, even if clinically complex. As a result, this ensures that payment adjustments are based on demonstrated cost patterns rather than clinical potential alone. In instances where the data does not demonstrate the requisite frequency or resource use associated with the condition, such diagnoses are not included in the adjustment. For example, in response to concerns about behavioral and circulatory conditions being paired with only one skin subgroup, Skin 3 or Skin 4, despite comparable clinical risks, we again want to remind commenters that subgroup combinations are determined by observed utilization and statistical significance. If specific conditions do not meet the required thresholds in relation to particular ulcer types, they are not included in those pairings. Finally, we acknowledge the one commenter suggestion to refine the case-mix adjustment methodology, particularly regarding the admission source variable. We will continue to monitor these trends and assess whether refinements to the admission source variable are warranted in future rulemaking to ensure that the case-mix adjustment methodology remains accurate and responsive to evolving patterns of care.

\13\ https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health-pps/home-health-pps-archive.

Final Decision: We are finalizing the updated comorbidity adjustment subgroups and the high comorbidity adjustment interactions using CY 2024 home health data. For CY 2026, the final updated comorbidity adjustment subgroups include 20 low comorbidity adjustment subgroups as identified in table 10 and 98 high comorbidity adjustment interaction subgroups as identified in table 11. The final CY 2026 low comorbidity adjustment subgroups and the high comorbidity adjustment interaction subgroups including those diagnoses within each of these comorbidity adjustments will also be posted on the HHA Center web page at https://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center. 4. Final CY 2026 PDGM Case-Mix Weights

As finalized in the CY 2019 HH PPS final rule with comment period (83 FR 56502), the PDGM places patients into meaningful payment categories based on patient and other characteristics, such as timing, admission source, clinical grouping using the reported principal diagnosis, functional impairment level, and comorbid conditions. The PDGM case-mix methodology results in 432 unique case-mix groups called home health resource groups (HHRGs). We also finalized a policy in the CY 2019 HH PPS final rule with comment period (83 FR 56515) to annually recalibrate the PDGM case-mix weights using a fixed effects model with the most recent and complete utilization data available at the time of annual rulemaking. Annual recalibration of the PDGM case-mix weights ensures that the case-mix weights reflect, as accurately as possible, current home health resource use and changes in utilization patterns. To generate the proposed recalibrated CY 2026 case-mix weights, we used CY 2024 home health claims data with linked OASIS data (as of March 13, 2025). We included the proposed case-mix weights in table 25 of the proposed rule (90 FR 29145). In this final rule, we update these case- mix weights with claims data as of July 11, 2025, as shown in table 13. These data are the most current and complete data available at the time of this rulemaking.

The claims data provide visit-level data and data on whether non- routine supplies (NRS) were provided during the period and the total charges of NRS. We determine the case-mix weight for each of the 432 different PDGM payment groups by regressing resource use on a series of indicator variables for each of the categories using a fixed effects model as described in the following steps:

Step 1: Estimate a regression model to assign a functional impairment level to each 30-day period. The regression model estimates the relationship between a 30-day period's resource use and the functional status and risk of hospitalization items included in the PDGM, which are obtained from certain OASIS items. We refer readers to table 25 of the proposed rule for further information on the OASIS items used for the functional impairment level under the PDGM. We measure resource use with the cost-per-minute + NRS approach that uses information from 2022 home health cost reports. We use 2022 home health cost report data because it is the most complete cost report data available at the time of rulemaking. Other variables in the regression model include the 30-day period's admission source, clinical group, and 30-day period timing. We also include home health agency level fixed effects in the regression model. After estimating the regression model using 30-day periods, we divide the coefficients that correspond to the functional status and risk of hospitalization items by 10 and round to the nearest whole number. Those

rounded numbers are used to compute a functional score for each 30-day period by summing together the rounded numbers for the functional status and risk of hospitalization items that are applicable to each 30-day period. Next, each 30-day period is assigned to a functional impairment level (low, medium, or high) depending on the 30-day period's total functional score. Each clinical group has a separate set of functional thresholds used to assign 30-day periods into a low, medium, or high functional impairment level. We set those thresholds so that we assign roughly a third of 30-day periods within each clinical group to each functional impairment level (low, medium, or high).

Step 2: A second regression model estimates the relationship between a 30-day period's resource use and indicator variables for the presence of any of the comorbidities and comorbidity interactions that were originally examined for inclusion in the PDGM. Like the first regression model, this model also includes home health agency level fixed effects and includes control variables for each 30-day period's admission source, clinical group, timing, and functional impairment level. After we estimate the model, we assign comorbidities to the low comorbidity adjustment if any comorbidities have a coefficient that is statistically significant (p-value of 0.05 or less) and which have a coefficient that is larger than the 50th percentile of positive and statistically significant comorbidity coefficients. If two comorbidities in the model and their interaction term have coefficients that sum together to exceed $150 and the interaction term is statistically significant (p-value of 0.05 or less), we assign the two comorbidities together to the high comorbidity adjustment.

Step 3: After Step 2, each 30-day period is assigned to a clinical group, admission source category, episode timing category, functional impairment level, and comorbidity adjustment category. For each combination of those variables (which represent the 432 different payment groups that comprise the PDGM), we then calculate the 10th percentile of visits across all 30-day periods within a particular payment group. If a 30-day period's number of visits is less than the 10th percentile for their payment group, the 30-day period is classified as a Low Utilization Payment Adjustment (LUPA). If a payment group has a 10th percentile of visits that is less than two, we set the LUPA threshold for that payment group to be equal to two. That means if a 30-day period has one visit, it is classified as a LUPA and if it has two or more visits, it is not classified as a LUPA.

Step 4: Take all non-LUPA 30-day periods and regress resource use on the 30-day period's clinical group, admission source category, episode timing category, functional impairment level, and comorbidity adjustment category. The regression includes fixed effects at the level of the home health agency. After we estimate the model, the model coefficients are used to predict each 30-day period's resource use. To create the case-mix weight for each 30-day period, the predicted resource use is divided by the overall resource use of the 30-day periods used to estimate the regression.

The case-mix weight is then used to adjust the base payment rate to determine each 30-day period's payment. Table BBB shows the coefficients of the payment regression used to generate the weights, and the coefficients divided by average resource use. BILLING CODE 4120-01-P

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The final updated case-mix weights for CY 2026 are listed in table 13 and will also be posted on the HHA Center web page \14\ upon display of this final rule. BILLING CODE 4120-01-P

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Changes to the PDGM case-mix weights are implemented in a budget neutral manner by multiplying the CY 2026 national standardized 30-day period payment rate by a case-mix budget neutrality factor. Typically, the case-mix weight budget neutrality factor is also calculated using the most recent, complete home health claims data available. For CY 2026, we will continue the practice of using the most recent complete home health claims

data at the time of rulemaking, which is CY 2024 data. The case-mix budget neutrality factor is calculated as the ratio of 30-day base payment rates such that total payments when the CY 2026 PDGM case-mix weights (developed using CY 2024 home health claims data) are applied to CY 2024 utilization (claims) data are equal to total payments when CY 2025 PDGM case-mix weights (developed using CY 2023 home health claims data) are applied to CY 2024 utilization data. This produced a proposed case-mix budget neutrality factor for CY 2026 of 1.0051.

We invited public comments on the CY 2026 proposed case-mix weights and proposed case-mix weight budget neutrality factor. The following is a summary of the comments we received and our responses:

Comment: Several commenters expressed support for the proposed case-mix weights using the most current data available for recalibration.

Response: We thank the commenters for their support.

Comment: Several commenters expressed concern over the proposed recalibration of the PDGM case-mix weights, stating that they believe this proposal relies on potentially fraudulent claims data (including the data particularly from Los Angeles County, COVID-19 pandemic-era anomalies and outdated assumptions) which may potentially reward outlier behavior while penalizing providers that are compliant. A few commenters suggested that weights should be frozen at CY 2020 levels until potentially problematic claims (claims that have billing patterns based on excessive recertification rates and abnormal use of high reimbursement codes) are excluded. Several commenters also mentioned that they believe CMS's methodology blends behavior assumptions with recalibration, which ultimately results in “double counting” and misclassification of provider behavior. Some commenters stated that this methodology results in the current weights undervaluing high acuity cases, including patients with heart failure, COPD, diabetes, and complex postsurgical recovery, as well as the therapy related groupings. Commenters further suggested that undervaluation has already reduced access to therapy services, particularly for patients that require intensive speech language, swallowing, or mobility interventions. Commenters also posited that annual recalibration creates volatility, complicates financial and operational planning, and thus, requested that CMS increase transparency by publishing multiyear comparative tables, impact simulations, and clearer explanations of OASIS mapping assumptions. Some commenters cited that rising patient acuity, operational expenses, and workforce shortages present justifications for higher payment levels and thus stated that recalibration should not be constrained by budget neutrality. Commenters further stated that budget neutrality reallocates points in ways that diminish the weight of important clinical factors (such as ambulation, which potentially leads to adverse outcomes like increased falls and hospitalizations). Other commenters noted that the combined effect of recalibration and other adjustments contributes to substantial year-to-year payment variances, which they state may disproportionately disadvantage HHAs that are mainly serving medically complex or rural populations.

Response: CMS appreciates commenters' feedback regarding the proposed recalibration of the PDGM case-mix weights. While we understand concerns about data integrity, behavior assumptions, and the impact on high acuity patients, ultimately, we continue to believe that annual recalibration is essential to ensure that weights reflect current utilization patterns and patient characteristics. Recalibration only considers patient characteristics and associated resource use to ensure that the case-mix weights accurately reflect the types of patients HHAs are servicing. The behavior adjustments only ensure that Medicare is not paying any more under the PDGM than it would have under the prior 153-group system.

If CMS were to prolong recalibration beyond an annual schedule, this would not accurately reflect year-to-year changes in resource use associated with patient characteristics. That said, for CY 2026, the use of CY 2024 claims represents the most complete and current data available. Also, as it relates to commenters' concerns regarding fraudulent/anomalous claims, we would like to note that the recalibration methodology finalized in the CY 2019 HH PPS rule (83 FR 56502) is applied nationally and is based on the aggregate relationship between patient characteristics and observed resource use. Therefore, any stated “undervaluation” would be the result of what is being reported by HHAs. To add, program integrity issues are addressed through separate oversight channels and do not alter the statutory requirement for recalibrations to be implemented in a budget-neutral manner, as required by section 1895(b)(3)(A)(i) of the Act. Finally, we acknowledge that annual recalibration may contribute to year-to-year variability, but the overarching intent is to align payments as closely as possible with actual resource use as reported by HHAs. While we understand commenters' concerns about HHAs serving mainly medically complex or rural populations potentially being disproportionately disadvantaged, the case-mix weights are universally applied to the national, standardized 30-day payment rate. Nevertheless, CMS will continue to evaluate ways to improve transparency while monitoring broader system trends such as rising acuity, workforce shortages, and operational costs.

Final Decision: We are finalizing the recalibrated case-mix weights for CY 2026, updated with claims data as of July 11, 2025. We did not receive any comments on the proposed case-mix weight budget neutrality factor. Therefore, we are finalizing the proposal to implement the changes to the PDGM case-mix weights in a budget neutral manner by applying a case-mix budget neutrality factor to the CY 2026 national, standardized 30-day period payment rate. Using the most updated data at the time of rulemaking, the final case-mix budget neutrality factor for CY 2026 will be 1.0052.

Section 1895(b)(3)(B) of the Act requires that the standard prospective payment amounts for home health be increased by a factor equal to the applicable home health market basket update for those HHAs that submit quality data as required by the Secretary. In the CY 2024 HH PPS final rule (88 FR 77726), we finalized a rebasing of the home health market basket to reflect 2021 cost report data. We also finalized a policy for CY 2024 and subsequent years that the labor- related share will be 74.9 percent, and the non-labor-related share will be 25.1 percent. A detailed description of how we rebased the home health market basket and labor-related share is available in the CY 2024 HH PPS final rule (88 FR 77726 through 77742).

In the CY 2015 HH PPS final rule (79 FR 38384), we finalized our methodology for calculating and applying the productivity adjustment. As we explained in that rule, section 1895(b)(3)(B)(vi) of the Act, requires that, in CY 2015 (and in subsequent calendar years, except CY 2018 (under section 411(c) of the Medicare Access and CHIP Reauthorization Act of 2015

(MACRA) (Pub. L. 114-10, enacted April 16, 2015)), the market basket percentage under the HH PPS as described in section 1895(b)(3)(B) of the Act be annually adjusted by changes in economy-wide productivity. Section 1886(b)(3)(B)(xi)(II) of the Act defines the productivity adjustment as equal to the 10-year moving average of change in annual economy-wide private nonfarm business multifactor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, calendar year, cost reporting period, or other annual period). The Bureau of Labor Statistics (BLS) publishes the official measures of productivity for the United States economy. We note that previously, the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act was published by BLS as private nonfarm business multifactor productivity. Beginning with the November 18, 2021, release of productivity data, BLS replaced the term “multifactor productivity” with “total factor productivity” (TFP). BLS noted that this is a change in terminology only and will not affect the data or methodology. As a result of the BLS name change, the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act is now published by BLS as “private nonfarm business total factor productivity”. We refer readers to https://www.bls.gov for the BLS historical published TFP data. A complete description of IHS Global Inc.'s (IGI) TFP projection methodology is available on the CMS website at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information.

The proposed home health market basket update for CY 2026 was based on the estimated home health market basket percentage increase, specified at section 1895(b)(3)(B)(iii) of the Act, of 3.2 percent (based on IHS Global Inc.'s first quarter 2025 forecast with historical data through fourth quarter 2024). The estimated CY 2026 proposed home health market basket percentage increase of 3.2 percent was then reduced by a productivity adjustment, in accordance with section 1895(b)(3)(B)(vi) of the Act. Based on IGI's first quarter 2025 forecast, the proposed productivity adjustment was estimated to be 0.8 percentage point for CY 2026. Therefore, the proposed CY 2026 home health market basket update was 2.4 percent (3.2 percent market basket percentage increase, reduced by a 0.8 percentage point productivity adjustment). Furthermore, we proposed that if more recent data became available (for example, a more recent estimate of the market basket percentage increase and/or productivity adjustment), we would use such data, if appropriate, to determine the final CY 2026 market basket percentage increase and productivity adjustment in the final rule.

Section 1895(b)(3)(B)(v) of the Act requires that the home health percentage update be decreased by 2 percentage points for those HHAs that do not submit quality data as required by the Secretary. For HHAs that do not submit the required quality data for CY 2026, the proposed home health payment update percentage was 0.4 percent (2.4 percent minus 2 percentage points).

We invited public comments on the proposed CY 2026 home health market basket percentage increase and productivity adjustment. The following is a summary of the comments received and our responses:

Comment: Multiple commenters stated that they support CMS' proposal and application of the CY 2026 market basket update but expressed concerns that the proposed market basket update of 3.2 percent for CY 2026 would fail to adequately address the inflationary pressures and cost increases experienced by HHAs.

Commenters cited organization-specific experience and data demonstrating that the proposed update does not align with the increased cost of skilled care experienced by the home health industry, particularly for labor costs amid continued recruitment challenges, and stated that they believe it to be inconsistent with price trends evidenced in Bureau of Labor Statistics (BLS) data. They emphasized that it is critically important for the annual payment update to accurately reflect price growth in the cost of care to ensure that beneficiaries needing home health services have access to care and to support the viability of this important Medicare benefit over time. Multiple commenters noted that they expect actual inflation costs to far exceed the proposed market basket update, creating a widening gap between Medicare payments and the actual cost of providing home health services.

Several commenters urged CMS to reassess the market basket construction, forecasting methodology, whether the reliance on the Employment Cost Index is capturing shifts to contract labor and other changes to the home health workforce, and to consider methodological refinements and greater transparency.

Response: We appreciate the comments regarding the proposed CY 2026 HH PPS market basket update and recognize the concerns raised about inflationary pressures affecting HHAs. Section 1895(b)(3)(B) of the Act requires that the standard prospective payment amounts be increased by a factor equal to the applicable home health market basket update for those HHAs that submit quality data as required by the Secretary. The home health market basket is a fixed-weight, Laspeyres-type price index, which measures the change in price, over time, of the same mix of goods and services purchased in the base period. Any changes in the quantity or mix of goods and services (such as shifts in the occupational mix of the workforce) purchased over time relative to the base period are appropriately not measured. The home health market basket was last rebased to reflect a 2021 base year effective for CY 2024 (88 FR 77726).

We continue to believe that the home health market basket cost weights accurately reflect the cost structure of HHAs, allowing for an accurate estimate of the price pressures that HHAs will face in CY 2026. Since the home health market basket update is required to be set prospectively, it relies on a mix of historical data for part of the period for which the update is calculated and forecasted data for the remainder. As a result, the market basket percentage increase reflects expectations of trends, which may periodically differ from actual experience due to unforeseen events and short-term volatility.

The forecasted data are provided by IHS Global Inc. (IGI), a nationally recognized economic and financial forecasting firm with which CMS contracts to forecast the components of the market baskets. In the CY 2026 HH PPS proposed rule, we proposed that if more recent data become available, we would use such data, if appropriate, to derive the final CY 2026 home health market basket update for the final rule.

In this final rule, we have incorporated the most recent historical data and forecasts provided by IGI to capture the expected price and wage pressures facing HHAs in CY 2026. The CY 2026 market basket update in this final rule reflects historical data through the second quarter of 2025 and forecasted data for the third quarter of 2025 through the fourth quarter of 2026. Accordingly, the final CY 2026 market basket update reflects an updated and revised outlook on the U.S. economy.

Based on IGI's third quarter 2025 forecast with historical data through second quarter 2025 of the 2021-based home health market basket percentage

increase for CY 2026 is 3.2 percent, reflecting forecasted compensation price growth of 3.3 percent. We will continue to evaluate opportunities to enhance transparency around the market basket and to assess whether refinements to inputs or methods are warranted. Any changes deemed necessary would be proposed through notice and comment rulemaking.

Comment: Several commenters noted that in every year from 2021 through 2024, actual inflation has outpaced the CMS market basket adjustment for the home health industry. Commenters emphasized that CYs 2021 and 2022 alone represented a shortfall of over 5 percentage points and, unless corrected, the forecast error compounds underpayments with each successive year which could result in significant cumulative underpayment by the year 2030.

Multiple commenters referenced the precedent for CMS to implement forecast error corrections, noting that in the FY 2024 Skilled Nursing Facility Prospective Payment System final rule CMS finalized a 3.6 percentage points market basket forecast error adjustment for SNFs. They stated that the cumulative shortfall in the SNF updates, preceding the implementation of the market basket forecast error adjustment, was less than the shortfall experienced by home health providers over the CY 2021-2022 period and noted that CMS subsequently finalized additional forecast error adjustments for SNFs in FY 2025 and FY 2026.

Several commenters recommended that CMS exercise its authority to implement a one-time market basket forecast error adjustment to payments in CY 2026 to account for previous forecast errors in home health market basket updates. They stated that this additional funding would enable home health providers to recruit and retain staff and be competitive in their local labor markets, while supporting improved access to care.

Response: A forecast error for a market basket update is equal to the actual market basket percentage increase for a given year less the forecasted market basket percentage increase. Due to the uncertainty regarding future price trends, forecast errors can be both positive and negative, as has occurred since the implementation of the HH PPS.

We acknowledge that over most of the history of the HH PPS, forecast errors have been smaller in magnitude, with the largest error prior to 2021 being an over forecast of 1.2 percentage points in 2009. As noted by commenters, more recently the home health market basket has been under forecast, with the largest forecast errors occurring in 2021 and 2022. The cumulative forecast error since HH PPS inception (fiscal year 2002 to CY 2024, excluding CY 2018 and CY 2020 when the market basket update was statutorily mandated) is -0.1 percent. The recent forecast errors were largely a function of uncertainty in the overall economy and the health sector specifically due to the nature of the COVID-19 PHE and the unforeseen rapidly accelerating inflationary environment.

In contrast to the SNF PPS, there is currently no mechanism to adjust for a market basket forecast error in the home health prospective payment system. Any changes in this respect would require careful consideration of the statutory and regulatory frameworks specific to the HH PPS, and any changes deemed necessary would be proposed through notice and comment rulemaking.

Comment: Numerous commenters opposed the proposed 0.8 percentage point productivity adjustment for CY 2026, arguing that this adjustment fails to account for home health-specific productivity factors. Commenters noted that the proposed 2026 productivity adjustment of 0.8 percentage point is among the highest historically applied without adequate justification or transparency and suggested that the 10-year moving average used to determine the productivity adjustment may be influenced by unprecedented pandemic-related fluctuations.

Several commenters expressed their belief that the productivity adjustment methodology is fundamentally flawed when applied to healthcare settings. One commenter cited that since 2014, the BLS' estimate of the annual percentage change in the private nonfarm business sector total factor productivity has ranged from -0.9 to 3.8, while CMS's computed productivity adjustment ranged from 0 to 0.8 percentage point. Commenters highlighted that CMS has applied the productivity adjustment exclusively to restrict increases in Medicare payments, and that in the one year where productivity in the non-farm business sector declined, CMS set the productivity adjustment to 0 rather than increasing payments.

Multiple commenters emphasized that industry-specific challenges prevent hospitals and HHAs from achieving productivity improvements consistent with the private nonfarm business sector. They stated that the private nonfarm sector encompasses a broad range of industries, some with stable and predictable production processes and outputs, while healthcare providers operate in complex environments characterized by unpredictable patient volumes, rising input costs, varying patient acuity levels, and regulatory requirements. Therefore, they posited that the use of the Total Factor Productivity (TFP) adjustment holds healthcare providers to an unreasonable standard by requiring that they mimic productivity gains obtained in industries that operate very differently.

Numerous commenters noted their belief that the cumulative effect of these reductions year over year, combined with the asymmetric treatment of declines in economy-wide productivity, leads to an increasing gap between payments and the cost of providing services, leaving healthcare providers increasingly underfunded and ultimately restricting the amount of care they can provide. Commenters suggested CMS reconsider the use or magnitude of the productivity adjustment or otherwise take these criticisms into account when considering decisions that affect payment where flexibility is afforded.

Response: Section 1895(b)(3)(B)(vi) of the Act requires the application of the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act to the HH PPS market basket increase factor. As required by statute, the CY 2026 productivity adjustment is derived based on the 10-year moving average growth in economy-wide private nonfarm business TFP for the period ending in CY 2026. We recognize the concerns of commenters regarding the appropriateness of the productivity adjustment; however, we are required under section 1895(b)(3)(B)(vi) of the Act to apply the specific productivity adjustment described here.

We have always made available on the CMS website the general method for calculating the productivity adjustment. This includes providing a link to the most recent BLS historical TFP data, which allows interested parties to obtain historical TFP annual index levels for 1987 through 2024. We also provided the IGI projection model (https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/tfp_methodology.pdf), which is used to derive annual TFP growth rates for 2025 and 2026. The annual index level derived from this method is then interpolated to quarterly levels, and the CY 2026 productivity adjustment is equal to the percent change in the 40-quarter moving average projected level for the period ending December 31,

2026, relative to the 40-quarter moving average projected level for the period ending December 31, 2025. We believe our methodology for the productivity adjustment is consistent with section 1886(b)(3)(B)(xi)(II) of the Act which states that the productivity adjustment is equal to the 10-year moving average of changes in annual economy-wide private nonfarm business multi-factor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period).

At the time of this final rule, the CY 2026 productivity adjustment reflects BLS historical TFP data through 2024 (released on March 21, 2025) and IGI's forecasted TFP growth for 2025 and 2026. The average annual growth rate of historical TFP published by BLS for 2017 through 2024 is currently 0.9 percent and IGI is projecting average TFP growth of about 0.3 percent for 2025 and 2026 based on IGI's third-quarter 2025 forecast. Combining the historical and projected TFP data over the entire 10-year time period results in a compound annual growth rate of TFP of 0.8 percent for 2026. The productivity adjustment (based on the 10-year period ending with CY 2026) for the CY 2026 final rule is the same as the CY 2026 proposed rule. The 0.8percent productivity adjustment in the CY 2026 final rule is larger than the productivity adjustment in prior final rules for CY 2023 and CY 2024 mainly due to the incorporation of updated BLS historical data.

In response to commenters' concerns about the productivity adjustment only being applied if it reduces the payment update, we note that the productivity adjustment was established under the Affordable Care Act with a specific policy intent to encourage efficiency improvements in healthcare delivery by linking Medicare payment updates to economy-wide productivity gains. The statutory language in section 1886(b)(3)(B)(xi)(II) of the Act requires that the Secretary reduce (not increase) the market basket percentage increase by changes in economy-wide productivity, therefore, only positive productivity adjustments are applied.

Final Decision: Consistent with section 1895(b)(3)(B)(vi) of the Act, and as outlined previously in section IV.B.1. of this final rule, we are finalizing the home health payment update methodology. The market basket percentage increase for CY 2026 for the HH PPS is based on IGI's third quarter 2025 forecast of the home health market basket percentage increase, which is estimated to be 3.2 percent. As outlined earlier in this section, we are applying a 0.8 percentage point productivity adjustment to the CY 2026 home health market basket percentage increase. Therefore, the final CY 2026 home health market basket update is equal to 2.4 percent. 2. Final CY 2026 Home Health Wage Index a. Background

Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act require the Secretary to provide appropriate adjustments to the proportion of the payment amount under the HH PPS that account for area wage differences, using adjustment factors that reflect the relative level of wages and wage-related costs applicable to the furnishing of home health services. Since the inception of the HH PPS, we have used inpatient hospital wage data in developing a wage index to be applied to home health payments. We proposed to continue this practice for CY 2026, as it is our belief that, in the absence of home health-specific wage data that accounts for area differences, using inpatient hospital wage data, including any changes made by the Office of Management and Budget (OMB) to Metropolitan Statistical Area (MSA) definitions, is appropriate and reasonable for the HH PPS.

In general, OMB issues major revisions to statistical areas every 10 years, based on the results of the decennial census. However, OMB occasionally issues minor updates and revisions to statistical areas in the years between the decennial censuses. On April 10, 2018, OMB issued OMB Bulletin No. 18-03, which superseded the August 15, 2017, OMB Bulletin No. 17-01. On September 14, 2018, OMB issued OMB Bulletin No. 18-04 which superseded the April 10, 2018, OMB Bulletin No. 18-03. These bulletins established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of the delineations of these statistical areas. A copy of OMB Bulletin No. 18-04 may be obtained at https://www.bls.gov/bls/omb-bulletin-18-04-revised-delineations-of-metropolitan-statistical-areas.pdf. In the CY 2021 HH PPS final rule (85 FR 70298), we finalized our proposal to adopt the revised OMB delineations with a 5 percent cap on wage index decreases in CY 2021.

On July 21, 2023, OMB issued Bulletin No. 23-01, which updates and supersedes OMB Bulletin No. 20-01, issued on March 6, 2020. OMB Bulletin No. 23-01 establishes revised delineations for the MSAs, Micropolitan Statistical Areas, Combined Statistical Areas, and Metropolitan Divisions, collectively referred to as Core Based Statistical Areas (CBSAs). According to OMB, the delineations reflect the 2020 Standards for Delineating Core Based Statistical Areas (CBSAs) (the “2020 Standards”), which appeared in the Federal Register (86 FR 37770 through 37778) on July 16, 2021, and application of those standards to Census Bureau population and journey-to-work data (for example, 2020 Decennial Census, American Community Survey, and Census Population Estimates Program data). A copy of OMB Bulletin No. 23-01 is available online at https://www.bls.gov/bls/omb-bulletin-23-01-revised-delineations-of-metropolitan-statistical-areas.pdf.

In the CY 2025 HH PPS final rule (89 FR 88354), we finalized our proposal to adopt the revised OMB delineations from OMB Bulletin 23-01 with a 5 percent cap on wage index decreases at the CBSA level as well as at the county level. In that final rule we stated that we believe it is important for the HH PPS wage index to use the latest OMB delineations available in order to maintain a more accurate and up-to- date payment system that reflects the reality of population shifts and labor market conditions. We also stated that we believe using the most current OMB delineations will increase the integrity of the HH PPS wage index by creating a more accurate representation of geographic variation in wage levels. b. Five Percent Cap on Wage Index Decreases

In the CY 2023 HH PPS final rule (87 FR 66851 through 66853), we finalized a policy that the CY HH PPS wage index will include a permanent 5 percent cap on wage index decreases for CY 2023 and each subsequent year. Specifically, we finalized, for CY 2023 and subsequent years, the application of a permanent 5 percent cap on any decrease to a geographic area's wage index from its wage index in the prior year, regardless of the circumstances causing the decline. That is, we finalized a policy requiring that a geographic area's wage index for CY 2023 will not be less than 95 percent of its final wage index for CY 2022, regardless of whether the geographic area is part of an updated CBSA, and that for subsequent years, a geographic area's wage index will not be less than 95 percent of its wage index calculated in the prior CY.

Previously this methodology was applied to all counties that make up a

CBSA or statewide rural area. However, in the CY 2025 HH PPS final rule (89 FR 88418 through 88421), because of the adoption of the revised OMB delineations from OMB Bulletin 23-01, we finalized a policy applying this methodology to individual counties. Specifically, we finalized a policy applying the 5 percent cap to counties that moved from a CBSA or statewide rural area with a higher wage index value into a new CBSA or rural area with a lower wage index value, so that the county's CY 2025 wage index would not be less than 95 percent of the county's CY 2024 wage index value under the old delineation despite moving into a new delineation with a lower wage index.

Due to the way that we proposed calculating the 5 percent cap for counties that experienced an OMB designation change, some CBSAs and statewide rural areas could have had more than one wage index value. Specifically, some counties that changed OMB designations had a wage index value that was different than the wage index value assigned to the other constituent counties that made up that CBSA or statewide rural area that they moved into after the application of the 5 percent cap. However, for home health claims processing, each CBSA or statewide rural area can have only one wage index value assigned to that CBSA or statewide rural area. Therefore, we finalized a policy, beginning in CY 2025, that counties that have a different wage index value than the CBSA or rural area into which they are designated after the application of the 5 percent cap will use a wage index transition code. These special codes are five digits in length and begin with “50” and the remaining digits are unique for that code. The 50XXX wage index transition codes are used only in specific counties; counties located in CBSAs and rural areas that do not correspond to a different transition wage index value will still use the CBSA number.

We also finalized a policy applying the 5 percent cap to these specific counties that correspond to a different wage index value due to a delineation change until the county's new wage index is more than 95 percent of the wage index from the previous calendar year. In order to capture the correct wage index value, an HHA will continue to use the assigned 50XXX transition code on home health claims for services in these counties until the county's wage index value calculated for that calendar year using the new OMB delineations is not less than 95 percent of the county's capped wage index from the previous calendar year.

For CY 2026, the 5 percent cap on wage index decreases will continue to be calculated at the county level as well as the CBSA and statewide rural area level. While some counties that required a transition code for CY 2025 will continue to use the same transition code for CY 2026, other counties that required a transition code in CY 2025 will no longer require a transition code in CY 2026. In the counties that will no longer require a transition code beginning in CY 2026 wage index, the CY 2026 wage index of the CBSA or rural area that the county was redesignated into has a wage index value higher than 95 percent of the county's CY 2025 wage index. Therefore, these counties will use the CBSA or rural county code of the area they were redesignated into based on OMB Bulletin No. 23-01.

The complete list of counties and corresponding transition codes can be found as a separate tab in the calendar year's wage index file located on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/home-health-pps/home-health-pps-wage-index. c. Final CY 2026 HH PPS Wage Index

The appropriate wage index value is applied to the labor portion of the HH PPS rates based on the site of service for the beneficiary (defined in section 1861(m) of the Act as the beneficiary's place of residence). For CY 2026, we proposed to base the HH PPS wage index on the FY 2026 hospital pre-floor, pre-reclassified wage index for hospital cost reporting periods beginning on or after October 1, 2021, and before October 1, 2022 (FY 2022 cost report data). The final CY 2026 HH PPS wage index will not take into account any geographic reclassification of hospitals, including those in accordance with sections 1886(d)(8)(B) or 1886(d)(10) of the Act but will include the 5 percent cap on wage index decreases as discussed previously.

There exist some geographic areas where there are no hospitals, and thus, no hospital wage data on which to base the calculation of the HH PPS wage index. To address those geographic areas in which there are no inpatient hospitals, and thus, no hospital wage data on which to base the calculation of the CY 2026 HH PPS wage index, we proposed to continue to use the same methodology discussed in the CY 2007 HH PPS final rule (71 FR 65884) to address those geographic areas in which there are no inpatient hospitals.

For urban areas without inpatient hospitals, we use the average wage index of all urban areas within the State as a reasonable proxy for the wage index for that CBSA. For CY 2026, the only urban area without inpatient hospital wage data is Hinesville, GA (CBSA 25980). Using the average wage index of all urban areas in Georgia as a proxy, we proposed the CY 2026 wage index value for Hinesville, GA would be 0.8800. With updated wage data, the final CY 2026 HH PPS wage index value for Hinesville, GA will be 0.8779.

For rural areas that do not have inpatient hospitals, we use the average wage index from all contiguous Core Based Statistical Areas (CBSAs) as a reasonable proxy. The term “contiguous” means sharing a border (72 FR 49859). In the CY 2025 HH PPS final rule (89 FR 88422), we finalized a policy that rural North Dakota will become a rural area without a hospital from which hospital wage data can be derived. Therefore, in order to calculate the wage index for rural area 99935, North Dakota, we finalized using as a proxy, the average pre-floor, pre-reclassified hospital wage data from the contiguous CBSAs: CBSA 13900--Bismark, ND, CBSA 22020--Fargo, ND-MN, CBSA 24220--Grand Forks, ND-MN, and CBSA 33500, Minot, ND. Using this methodology, we proposed that the CY 2026 HH PPS wage index for rural North Dakota would be 0.8346. With updated wage data, the CY 2026 HH PPS final wage index value for rural North Dakota will be 0.8329.

Previously, the only rural area without a hospital from which hospital wage data could be derived was rural Puerto Rico. However, for rural Puerto Rico, we did not apply this methodology due to the distinct economic circumstances that exist there (for example, due to the proximity of almost all of Puerto Rico's various urban and non- urban areas to one another, this methodology would produce a wage index for rural Puerto Rico that is higher than that in half of its urban areas). Instead, we used the most recent wage index previously available for that area, which was 0.4047. Beginning in CY 2025, due to the adoption of the revised OMB delineations, there is now a hospital in rural Puerto Rico from which hospital wage data can be derived. Therefore, we finalized a policy that the wage index for rural Puerto Rico will now be based on the hospital wage data for the area instead of the previously available wage index of 0.4047. The CY 2025 final unadjusted wage index value for rural Puerto Rico was 0.2510. However, because 0.2510 is more than a 5 percent decline in the area's CY

2024 wage index, the 5 percent cap was applied and the final CY 2025 5 percent cap adjusted wage index for rural Puerto Rico was set equal to 95 percent of the CY 2024 wage index, which resulted in a final wage index value of 0.3845.

The unadjusted CY 2026 proposed wage index for rural Puerto Rico was 0.2452. However, because 0.2452 is more than a 5 percent decline in the CY 2025 wage index, we proposed that the CY 2026 5 percent cap adjusted wage index for rural Puerto Rico be set equal to 95 percent of the CY 2025 wage index, which resulted in a proposed wage index value of 0.3653. The unadjusted CY 2026 final wage index for rural Puerto Rico is 0.2443. However, because 0.2443 is more than a 5 percent decline in the CY 2025 wage index, we are finalizing the CY 2026 5 percent cap adjusted wage index for rural Puerto Rico, set equal to 95 percent of the CY 2025 wage index, which will result in a final wage index value of 0.3653.

Additionally, due to the adoption of the revised OMB delineations in the CY 2025 HH PPS final rule, Delaware, which was previously an all-urban state, now has one rural area with a hospital from which hospital wage data can be derived. As such, we proposed that the CY 2026 wage index for rural Delaware would be 1.0133. With updated wage data, the CY 2026 HH PPS final wage index value for rural Delaware will be 1.0095.

Finally, the Northern Mariana Islands and American Samoa are rural areas with no hospital data from which a wage index can be calculated. Consistent with our established methodology, we compute an appropriate wage index for rural areas with no hospital using the average wage index values from contiguous CBSAs, to represent a reasonable proxy. Therefore, we proposed that HHAs that provide services in the Northern Mariana Islands and American Samoa will use CBSA 99965 (Guam) and receive the wage index assigned to CBSA 99965 (Guam) of 0.9611. While we appreciate that the islands of the Pacific Rim are not actually contiguous, we believe that same principle applies here, and that Guam is a reasonable proxy for American Samoa and the Northern Mariana Islands. We believe that CBSA 99965 (Guam) represents a reasonable proxy because the islands are located within the Pacific Rim and share a common status as United States Territories.

We solicited comments on the proposed CY 2026 HH PPS wage index. The following is a summary of the comments we received and our responses:

Comment: Several commenters were opposed to the proposed wage index updates, particularly in rural areas. These commenters expressed concern that wage index changes in rural areas would worsen rural access to care issues. A commenter stated that the current method of adjusting labor costs using the hospital wage index does not accurately account for increased travel costs and lost productivity in serving rural areas. This commenter recommended a population density adjustment, stating that travel costs are increased because of the time and mileage involved for home health personnel to travel from patient to patient to provide services in areas with lower population densities, while, in densely populated areas, these costs are significantly reduced because of the relative proximity of beneficiaries to the home health agency.

Response: We appreciate commenters' concerns regarding the wage index values assigned to rural areas. As discussed in the CY 2022 HH PPS final rule (86 FR 62285), we do not believe that a population density adjustment is appropriate at this time. Rural HHAs continually cite the added cost of traveling from one patient to the next. However, urban HHAs cite the added costs associated with needed security measures and traffic congestion. The home health wage index values in rural areas are not necessarily lower than the home health wage index values in urban areas. The home health wage index reflects the wages that inpatient hospitals pay in their local geographic areas. We continue to believe that in the absence of home health specific data, the pre-floor, pre-reclassified hospital wage index is appropriate for the geographic adjustment of home health claims.

Comment: Several commenters expressed concern that home health providers are unable to benefit from IPPS hospital wage index policies such as reclassification and the rural floor. A commenter recommended that all providers should be guaranteed that their wage index value does not drop below the rural wage index value applicable in the state of operation. A few commenters requested that CMS modify its wage index policy to incorporate hospital reclassifications to ensure fair geographic payment adjustments. Another commenter stated that the significant variance in the wage index values assigned to IPPS hospitals and HHAs and hospices makes it much more difficult for home health and hospice providers to recruit nurses and other professional and para-professional staff when hospitals can offer those same individuals a much higher salary and benefit package due to this large variance in the wage index values.

Other commenters recommended that CMS institute a floor policy in the HH PPS. Several commenters located in Puerto Rico recommended that CMS implement a National Wage Index Floor of 0.6000. These commenters believe that a national wage index floor would stabilize Medicare home health payments and also improve parity within the national Medicare HH PPS. A few commenters also recommended a 0.8000 floor in the HH PPS wage index similar to the hospice floor.

Response: We thank the commenters for their recommendations. We continue to believe that the regulations and statutes that govern the HH PPS differ from the hospital and hospice regulations and statutes, such that there would be differences between how these payment systems apply wage index policies including geographic reclassification, or the rural floor. Section 4410(a) of the Balanced Budget Act of 1997 provides that the area wage index applicable to any hospital that is located in an urban area of a state may not be less than the area wage index applicable to hospitals located in rural areas in that State. This rural floor provision is specific to hospitals. The reclassification provision at section 1886(d)(10)(C)(i) of the Act states that the Medicare Geographic Classification Review Board shall consider the application of any subsection (d) hospital requesting the Secretary change the hospital's geographic classification for purposes of payment under the IPPS. This reclassification provision is only applicable to hospitals as defined in section 1886(d) of the Act. In addition, we do not believe that using hospital reclassification data would be appropriate as these data are specific to the requesting hospitals.

Additionally, the application of the hospice floor is specific to hospices and does not apply to HHAs. The hospice floor was developed through a negotiated rulemaking advisory committee, under the process established by the Negotiated Rulemaking Act of 1990 (Pub. L. 101-648). Committee members included representatives of national hospice associations; rural, urban, large, and small hospices; multi-site hospices; consumer groups; and a government representative. The Committee reached consensus on a methodology that resulted in the hospice wage index. We continue to believe the use of the pre-floor and pre-reclassified hospital wage

index results in the most appropriate adjustment to the labor portion of the home health payment rates.

Comment: Several commenters expressed concern with the wage index values assigned to their specific geographic areas. A commenter recommended that the wage index value for rural Hawaii match or exceed the wage index value assigned to rural California. A few commenters expressed concern with the wage index value assigned to rural Puerto Rico after the adoption of the delineations from OMB Bulletin No. 23- 01.

Response: We appreciate the concerns expressed by commenters regarding wage index values in specific geographic areas, including rural Hawaii and rural Puerto Rico. While we understand these concerns, we believe that the permanent 5 percent cap policy provides an adequate safeguard against any significant payment reductions in CY 2026 while improving the accuracy of the payment adjustment for differences in area wage levels.

Comment: Several commenters recommended far-reaching revisions and reforms to the HH PPS wage index methodology. A commenter stated that the pre-floor, pre-reclassified hospital wage index is inadequate for adjusting home health costs and recommended that CMS develop and implement a wage index model that is consistent across all provider types so that all providers have a level playing field from which to compete for personnel. Another commenter recommended that CMS develop a home health wage index and retire the use of the hospital wage index to determine the home health wage index. This commenter stated that until a new home health wage index can be implemented, they support CMS' proposal to continue using OMB's most recent statistical area delineations for the hospital wage index. A commenter stated that the current wage index fails to capture real costs in high-price markets such as New York City, creating structural underpayments that destabilize safety-net providers. This commenter believes that as with PDGM itself, COVID-19 pandemic-era data should be excluded from wage index calculations and that without meaningful reform to the wage index methodology, providers in many regions will continue to face structural disadvantages that further limit their ability to deliver care. Another commenter recommended changes to the wage index methodology including using state-specific data such as BLS wage surveys, accounting for housing and transportation costs, and exploring payment adjustments for high-cost areas.

Response: We thank the commenters for their recommendations. While we did not propose any changes to the wage index methodology in the proposed rule, we may consider these recommendations in future rulemaking.

Comment: A few commenters expressed support for the finalized 5 percent cap policy. However, other commenters recommended updates to the finalized 5 percent cap policy. A commenter recommended lowering the threshold of the cap to 2 percent. This commenter believes that lowering the cap to 2 percent would protect HHAs who operate with negative or razor-thin operating margins and are still experiencing multiple negative consequences due to the COVID-19 pandemic.

Response: We appreciate commenters' recommendations for changes to the 5 percent cap policy. However, in the CY 2026 HH PPS proposed rule, we did not propose to make changes to this policy. Therefore, these comments are outside the scope of the proposed rule. Any changes to the finalized 5 percent cap policy would need to go through notice and comment rulemaking. However, we continue to believe that a 5 percent cap would most effectively mitigate any significant decreases in a geographic area's wage index for a calendar year, while still balancing the importance of ensuring that area wage index values accurately reflect relative differences in area wage levels. Furthermore, we believe that the 5 percent cap on wage index decreases provides a degree of predictability in payment changes for providers and allows providers time to adjust to any significant decreases they may face year to year.

Final Decision: After consideration of public comments, we are finalizing our proposal to base the HH PPS wage index on the FY 2026 hospital pre-floor, pre-reclassified wage index for hospital cost reporting periods beginning on or after October 1, 2021, and before October 1, 2022 (FY 2022 cost report data). The final CY 2026 HH PPS wage index will include the 5 percent cap on wage index decreases.

Additionally, using our established methodology for rural areas with no hospitals, we are finalizing including in the CY 2026 HH PPS wage index the wage indexes for the Northern Mariana Islands and American Samoa. Consistent with our established methodology, we compute an appropriate wage index for rural areas with no hospital using the average wage index values from contiguous CBSAs to represent a reasonable proxy. We believe that CBSA 99965 (Guam) represents a reasonable proxy because the islands are located within the Pacific Rim and share a common status of US territories. Therefore, HHAs that provide services in the Northern Mariana Islands and American Samoa should use CBSA 99965 (Guam) and should receive the wage index assigned to CBSA 99965 (Guam) of 0.9611.

The final HH PPS wage index file applicable for CY 2026 (January 1, 2026, through December 31, 2026) is available on the CMS website at https://www.cms.gov/medicare/enrollment-renewal/providers-suppliers/home-health-agency-center. 3. Final CY 2026 Home Health Payment Update a. Background

The HH PPS has been in effect since October 1, 2000. As set forth in the July 3, 2000, final rule (65 FR 41128), the base unit of payment under the HH PPS was a national, standardized 60-day episode payment rate. As finalized in the CY 2019 HH PPS final rule with comment period (83 FR 56406), and as described in the CY 2020 HH PPS final rule with comment period (84 FR 60478), the unit of home health payment changed from a 60-day episode to a 30-day period effective for those 30-day periods beginning on or after January 1, 2020.

As set forth in Sec. 484.220, we adjust the national, standardized prospective payment rates by a case-mix relative weight and a wage index value based on the site of service for the beneficiary. To provide appropriate adjustments to the proportion of the payment amount under the HH PPS to account for area wage differences, we apply the appropriate wage index value to the labor portion of the HH PPS rates. In the CY 2024 HH PPS final rule (88 FR 77676), we finalized the rebasing of the home health market basket to reflect 2021 Medicare cost report data. We also finalized a policy that, for CY 2024 and subsequent years, the labor-related share will be 74.9 percent, and the non-labor-related share will be 25.1 percent. The following are the steps we take to compute the case-mix and wage- adjusted 30-day period payment amount for CY 2026:

Multiply the national, standardized 30-day period rate by the patient's applicable case-mix weight.

Divide the case-mix adjusted amount into a labor (74.9 percent) and a non-labor portion (25.1 percent).

Multiply the labor portion by the applicable wage index based on the site of service of the beneficiary.

Add the wage-adjusted portion to the non-labor portion, yielding the case-mix and wage adjusted 30-day period payment amount, subject to any additional applicable adjustments.

We provide annual updates of the HH PPS rate in accordance with section 1895(b)(3)(B) of the Act. Section 484.225 sets forth the specific annual percentage update methodology. In accordance with section 1895(b)(3)(B)(v) of the Act and Sec. 484.225(i), for an HHA that does not submit home health quality data, as specified by the Secretary, the unadjusted national prospective 30-day period rate is equal to the rate for the previous calendar year increased by the applicable home health payment market basket, minus two percentage points. Any reduction of the percentage change will apply only to the calendar year involved and will not be considered in computing the prospective payment amount for a subsequent calendar year.

The final claim that the HHA submits for payment determines the total payment amount for the period and whether we make an applicable adjustment to the 30-day case-mix and wage-adjusted payment amount. The end date of the 30-day period, as reported on the claim, determines which calendar year rates Medicare will use to pay the claim.

We may adjust a 30-day case-mix and wage-adjusted payment based on the information submitted on the claim to reflect the following:

A LUPA is provided on a per-visit basis as set forth in Sec. Sec. 484.205(d)(1) and 484.230.

A partial payment adjustment as set forth in Sec. Sec. 484.205(d)(2) and 484.235.

An outlier payment as set forth in Sec. Sec. 484.205(d)(3) and 484.240. b. Final CY 2026 National, Standardized 30-Day Period Payment Amount

Section 1895(b)(3)(A)(i) of the Act requires that the standard prospective payment rate and other applicable amounts be standardized in a manner that eliminates the effects of variations in relative case- mix and area wage adjustments among different HHAs in a budget-neutral manner. To determine the CY 2026 national, standardized 30-day period payment rate, we will continue our practice of using the most recent, complete utilization data at the time of rulemaking; that is, we are using CY 2024 claims data for CY 2026 payment rate updates. We apply a permanent adjustment factor, a case-mix weights recalibration budget neutrality factor, a wage index budget neutrality factor, the home health payment update percentage, and a temporary adjustment factor to update the CY 2026 payment rate. As discussed in section II.C.1. of this final rule, we are finalizing the implementation of a permanent adjustment of -1.023 percent to ensure that estimated aggregate expenditures under the PDGM are equal to the estimated aggregate expenditures that otherwise would have been under the 153-group payment system as required by law. The final permanent adjustment factor is 0.98977. As discussed previously, to ensure the changes to the PDGM case-mix weights are implemented in a budget neutral manner, we apply a case-mix weight budget neutrality factor to the CY 2026 national, standardized 30-day period payment rate. The final case-mix weight budget neutrality factor for CY 2026 is 1.0052.

Additionally, we apply a wage index budget neutrality factor to ensure that wage index updates and revisions are implemented in a budget neutral manner. To calculate the wage index budget neutrality factor, we first determine the payment rate needed for non-LUPA 30-day periods using the CY 2026 wage index (with the 5 percent cap) so those total payments are equivalent to the total payments for non-LUPA 30-day periods using the CY 2025 wage index (with the 5 percent cap) and the CY 2025 national standardized 30-day period payment rate adjusted by the case-mix weights recalibration neutrality factor. Then, by dividing the payment rate for non-LUPA 30-day periods using the CY 2026 wage index with the 5 percent cap on wage index decreases) by the payment rate for non-LUPA 30-day periods using the CY 2025 wage index (with the 5 percent cap on wage index decreases), we obtain a wage index budget neutrality factor of 1.0025. We then apply the wage index budget neutrality factor of 1.0025 to the 30-day period payment rate.

Next, we update the 30-day period payment rate by the final CY 2026 home health payment update percentage of 2.4 percent. As discussed in section II.C.1. of this final rule, we also finalizing the implementation of a temporary -3.0 percent reduction to the CY 2026 base payment rate. The final temporary adjustment factor is 0.97000. Per section 1895(b)(3)(D)(iii) of the Act a temporary adjustment is to be applied for the applicable year and not included when computing a payment rate for a subsequent year. In other words, the temporary adjustment factor for CY 2026 should not be included in the starting payment rate for CY 2027. Therefore, we have calculated the CY 2026 national, standardized 30-day period payment with and without the temporary adjustment factor. The CY 2026 national standardized 30-day period payment rate without a temporary adjustment is only for illustrative purposes. The actual CY 2026 national standardized 30-day period payment rate includes the final temporary adjustment and is calculated in table 14.

Next, we update the 30-day period payment rate by the final CY 2026 home health payment update percentage of 2.4 percent. The CY 2026 national standardized 30-day period payment rate is calculated in table 14.

[GRAPHIC] [TIFF OMITTED] TR02DE25.038

The CY 2026 national standardized 30-day period payment rate for an HHA that does not submit the required quality data will be updated by 0.4 percent (the final CY 2026 home health payment update percentage of 2.4 percent minus 2 percentage points) and is shown in table 15. [GRAPHIC] [TIFF OMITTED] TR02DE25.039

The national per-visit rates are used to pay LUPAs and are also used to compute imputed costs in outlier calculations. The per-visit rates are paid by type of visit or home health discipline. The six home health disciplines are as follows:

Home health aide (HH aide).

Medical Social Services (MSS).

Occupational therapy (OT).

Physical therapy (PT).

Skilled nursing (SN).

Speech-language pathology (SLP).

To calculate the final CY 2026 national per-visit rates, we started with the CY 2025 national per-visit rates. Then we applied a wage index budget neutrality factor to ensure budget neutrality for LUPA per-visit payments. We calculated the wage index budget neutrality factor by simulating total payments for LUPA 30-day periods of care using the CY 2026 wage index with the 5 percent cap on wage index decreases and comparing it to simulated total payments for LUPA 30-day periods of care using the CY 2025 wage index with the 5 percent cap. By dividing the total payments for LUPA 30-day periods of care using the CY 2026 wage index by the total payments for LUPA 30-day periods of care using the CY 2025 wage index, we obtained a wage index budget neutrality factor of 1.0005. As a reminder, the wage index budget neutrality factors for the national, standardized 30-day period amount and the national LUPA per-visit rates are not equal because they are calculated differently. The wage index budget neutrality factor for the LUPA per- visit payments is calculated by simulating total payments for LUPA 30- day periods while the 30-day period budget neutrality factor is calculated by simulating payments for non-LUPA 30-day periods.

The LUPA per-visit rates are not calculated using case-mix weights.

Therefore, no case-mix weight budget neutrality factor is needed to ensure budget neutrality for LUPA payments. Additionally, we are not applying the permanent adjustment or the temporary adjustment to the per-visit payment rates but only to the case-mix adjusted 30-day payment rate. Lastly, the per-visit rates for each discipline are updated by the final CY 2026 home health payment update percentage of 2.4 percent. The national per-visit rates are adjusted by the wage index based on the site of service of the beneficiary. The per-visit payments for LUPAs are separate from the LUPA add-on payment amount, which is paid for periods that occur as the only period or initial period in a sequence of adjacent periods. The final CY 2026 national per-visit rates for HHAs that submit the required quality data are updated by the final CY 2026 home health payment update percentage of 2.4 percent and are shown in table 16. [GRAPHIC] [TIFF OMITTED] TR02DE25.040

The CY 2026 per-visit payment rates for HHAs that do not submit the required quality data will be updated by 0.4 percent, which is the final CY 2026 home health payment update percentage of 2.4 percent minus 2 percentage points and are shown in table 17. [GRAPHIC] [TIFF OMITTED] TR02DE25.041

We solicited comments on the proposed CY 2026 30-day home health payments rates and per-visit payment rates, but did not receive comments on this proposal.

Final Decision: We are finalizing the updates to the CY 2026 national, standardized 30-day period payment rates and the CY 2026 national per-visit payment amounts as proposed, using the final CY 2026 market basket update. d. LUPA Add-On Factors

Prior to the implementation of the 30-day unit of payment, LUPA episodes were eligible for a LUPA add-on payment if the episode of care was the first or only episode in a sequence of adjacent episodes. As described in the CY 2008 HH PPS final rule, the average visit lengths in these initial LUPAs are 16 to 18 percent higher than the average visit lengths in initial non-LUPA episodes (72 FR 49848). LUPA episodes that occur as the only episode or as an initial episode in a sequence of adjacent episodes are adjusted by applying an additional amount to the LUPA payment before adjusting for area wage differences.

In the CY 2014 HH PPS final rule (78 FR 72305), we changed the methodology for calculating the LUPA add-on amount, whereby we finalized the approach of multiplying the per-visit payment amount for the first skilled nursing (SN), physical therapy (PT), or speech language pathology (SLP) visit in LUPA episodes that occur as the only episode or an initial episode in a sequence of adjacent episodes by 1 + the proportional increase in minutes for an initial visit over non- initial visits. Specifically, we updated the analysis using 100 percent of LUPA episodes and a 20 percent sample of non-LUPA first episodes from CY 2012 claims data. At that time, we finalized add-on factors: 1.8451 for SN; 1.6700 for PT; and 1.6266 for SLP. In the CY 2019 HH PPS final rule with comment period (83 FR

56440), in addition to finalizing a 30-day unit of payment, we finalized our policy of continuing to multiply the per-visit payment amount for the first SN, PT, or SLP visit in LUPA periods that occur as the only period of care or the initial 30-day period of care in a sequence of adjacent 30-day periods of care by the appropriate add-on factor (using the already established LUPA add-on factors of 1.8451 for SN, 1.6700 for PT, and 1.6266 for SLP) to determine the LUPA add-on payment amount for 30-day periods of care under the PDGM.

In the CY 2025 HH PPS final rule (89 FR 88426 through 88427), in an effort to enhance the accuracy and relevance of LUPA add-on factors to reflect current healthcare practices and costs, we finalized updates to the LUPA add-on factors for PT, SN, and SLP, which had not been revised since the CY 2014 HH PPS final rule (using CY 2012 claims data). We finalized the proposal to use the same methodology to establish the LUPA add-on amount for CY 2014, using updated claims data.

Specifically, we updated the LUPA add-on factors by using 100 percent of LUPA periods and a 100 percent sample of non-LUPA first periods from CY 2023 claims data (as of September 11, 2024). Our analysis found that the average excess of minutes for the first visit in LUPA periods that were the only period or an initial LUPA in a sequence of adjacent periods are 29.91 minutes for the first visit if SN, 28.08 minutes for the first visit if PT, and 31.57 minutes for the first visit if SLP. The average minutes for all non-first visits in non-LUPA episodes are 41.54 minutes for SN, 45.11 minutes for PT, and 47.15 minutes for SLP. To determine the LUPA add-on factors for each discipline, we calculated the ratio of the average excess minutes for the first visits in LUPA claims to the average minutes for all non- first visits in non-LUPA claims. We then added one to these ratios to obtain the final add on factors. Therefore, beginning in CY 2025 the final LUPA add on factors for SN, PT, and SLP are 1.7200 for SN; 1.6225 for PT; and 1.6696 for SLP.

Additionally, as outlined in the CY 2025 HH PPS proposed rule (89 FR 55378), in order to implement Division CC, section 115, of the Consolidation Appropriations Act (CAA), 2021, CMS finalized changes to the regulations at Sec. [thinsp]484.55(a)(2) and (b)(3) that allowed occupational therapists to conduct initial and comprehensive assessments for all Medicare beneficiaries under the home health benefit when the plan of care does not initially include skilled nursing care, but included OT, as well as either PT or SLP (86 FR 62351). This change necessitated the establishment of a LUPA add-on factor for calculating the LUPA add-on payment amount for the first skilled OT visit in LUPA periods that occur as the only period of care or the initial 30-day period of care in a sequence of adjacent 30-day periods of care. However, at the time of the implementation, we stated in the CY 2022 HH PPS final rule (86 FR 62289), there was not sufficient data regarding the average excess minutes for the first visit in LUPA periods when the initial and comprehensive assessments are conducted by occupational therapists. Therefore, we finalized a policy using the PT LUPA add-on factor as a proxy. We also stated in the CY 2022 final rule that we will use the PT LUPA add-on factor as a proxy until we have CY 2022 data to establish a more accurate OT add-on factor for the LUPA add-on payment amounts (86 FR 62289). Ultimately, we refrained from using CY 2022 data (and instead utilized the PT LUPA add-on factor as a proxy for the OT LUPA add-on factor), as we marked the first year that occupational therapists were permitted to conduct the initial assessment. We wanted to extend our analysis to ensure we had sufficient data to reflect OT time spent conducting initial assessments to establish a discrete OT LUPA add-on factor (86 FR 62240).

In the CY 2025 HH PPS final rule (89 FR 88427), we finalized a proposal to discontinue use of the PT LUPA add-on factor as a proxy and established a definitive LUPA add-on factor for occupational therapy. We used the same methodology used to establish the LUPA add-on amount for CY 2014, as described previously for the SN, PT, and SLP add-on factors. Specifically, we updated the analysis using 100 percent of LUPA periods and a 100 percent sample of non-LUPA first periods from CY 2023 claims data. Using updated analysis (as of September 11, 2024), we found that the average excess of minutes for the first OT visit in LUPA periods that were the only period or an initial LUPA in a sequence of adjacent periods is 33.28 minutes for the first visit. The average number of minutes for all non-first visits in non-LUPA periods is 45.98 minutes for OT. To determine the LUPA add-on factor for OT to account for the excess minutes during the first visit in a LUPA period, we finalized calculating the ratio of the average excess minutes for the first visits in LUPA claims to the average minutes for all non-first visits in non-LUPA claims. We then added one to this ratio to obtain the final add on factor of 1.7238 for OT. Therefore, the OT LUPA factor of 1.7238 is used when occupational therapy is the first skilled visit in a LUPA period that occurs as the only period or an initial period in a sequence of adjacent periods. [GRAPHIC] [TIFF OMITTED] TR02DE25.042

4. Payments for High-Cost Outliers Under the HH PPS a. Background

Section 1895(b)(5) of the Act allows for the provision of an addition or adjustment to the home health payment amount otherwise made in the case of outliers because of unusual variations in the type or amount of medically necessary care. Under the HH PPS and the previous unit of payment (that is, 60-day episodes), outlier payments were made for 60-day episodes whose estimated costs exceed a threshold amount for each HHRG. The episode's estimated cost was established as the sum of the national wage-adjusted per-visit payment amounts delivered during the episode. The outlier threshold for each case-mix group or PEP adjustment

is defined as the 60-day episode payment or PEP adjustment for that group plus a fixed-dollar loss (FDL) amount. For the purposes of the HH PPS, the FDL amount is calculated by multiplying the home health FDL ratio by a case's wage-adjusted national, standardized 60-day episode payment rate, which yields an FDL dollar amount for the case. The outlier threshold amount is the sum of the wage and case-mix adjusted PPS episode amount and wage-adjusted FDL amount. The outlier payment is defined as a proportion of the wage-adjusted estimated cost that surpasses the wage-adjusted threshold. The proportion of additional costs over the outlier threshold amount paid as outlier payments is referred to as the loss-sharing ratio.

As we noted in the CY 2011 HH PPS final rule (75 FR 70397 through 70399), section 3131(b)(1) of the Affordable Care Act amended section 1895(b)(3)(C) of the Act to require that the Secretary reduce the HH PPS payment rates such that aggregate HH PPS payments were reduced by 5 percent. In addition, section 3131(b)(2) of the Affordable Care Act amended section 1895(b)(5) of the Act by redesignating the existing language as section 1895(b)(5)(A) of the Act and revised the language to state that the total amount of the additional payments or payment adjustments for outlier episodes could not exceed 2.5 percent of the estimated total HH PPS payments for that year. Section 3131(b)(2)(C) of the Affordable Care Act also added section 1895(b)(5)(B) of the Act, which capped outlier payments as a percent of total payments for each HHA for each year at 10 percent.

As such, beginning in CY 2011, we reduced payment rates by 5 percent and targeted up to 2.5 percent of total estimated HH PPS payments to be paid as outliers. To do so, we first returned the 2.5 percent held for the target CY 2010 outlier pool to the national, standardized 60-day episode rates, the national per visit rates, the LUPA add-on payment amount, and the NRS conversion factor for CY 2010. We then reduced the rates by 5 percent as required by section 1895(b)(3)(C) of the Act, as amended by section 3131(b)(1) of the Affordable Care Act. For CY 2011 and subsequent calendar years we targeted up to 2.5 percent of estimated total payments to be paid as outlier payments, and apply a 10-percent agency-level outlier cap.

In the CY 2017 HH PPS proposed and final rules (81 FR 43737 through 43742 and 81 FR 76702), we described our concerns regarding patterns observed in home health outlier episodes. Specifically, we noted the methodology for calculating home health outlier payments may have created a financial incentive for providers to increase the number of visits during an episode of care in order to surpass the outlier threshold and simultaneously created a disincentive for providers to treat medically complex beneficiaries who require fewer but longer visits. Given these concerns, in the CY 2017 HH PPS final rule (81 FR 76702), we finalized changes to the methodology used to calculate outlier payments, using a cost-per-unit approach rather than a cost- per-visit approach. This change in methodology allows for more accurate payment for outlier episodes, accounting for both the number of visits during an episode of care and the length of the visits provided. Using this approach, we now convert the national per-visit rates into per 15- minute unit rates. These per 15-minute unit rates are used to calculate the estimated cost of an episode to determine whether the claim would receive an outlier payment and the amount of payment for an episode of care. In conjunction with our finalized policy to change to a cost-per- unit approach to estimate episode costs and determine whether an outlier episode should receive outlier payments, in the CY 2017 HH PPS final rule we also finalized the implementation of a cap on the amount of time per day that would be counted toward the estimation of an episode's costs for outlier calculation purposes (81 FR 76725). Specifically, we limit the amount of time per day (summed across the six disciplines of care) to 8 hours (32 units) per day when estimating the cost of an episode for outlier calculation purposes.

In the CY 2017 HH PPS final rule (81 FR 76724), we stated that we did not plan to re-estimate the average minutes per visit by discipline every year. Additionally, the per unit rates used to estimate an episode's cost were updated by the home health update percentage each year, meaning we would start with the national per visit amounts for the same calendar year when calculating the cost-per-unit used to determine the cost of an episode of care (81 FR 76727). We would continue to monitor the visit length by discipline as more recent data becomes available and may propose updating the rates as needed in the future.

In the CY 2019 HH PPS final rule with comment period (83 FR 56521), we finalized a policy to maintain the current methodology for payment of high-cost outliers upon implementation of PDGM beginning in CY 2020 and calculated payment for high-cost outliers based upon 30-day period of care. Upon implementation of the PDGM and 30-day unit of payment, we finalized the FDL ratio of 0.56 for 30-day periods of care in CY 2020. In the CY 2025 HH PPS final rule (89 FR 88354), using CY 2023 claims data (as of July 11, 2024) we finalized the FDL ratio of 0.35 for CY 2025. b. Final FDL Ratio for CY 2026

For a given level of outlier payments, there is a trade-off between the values selected for the FDL ratio and the loss-sharing ratio. A high FDL ratio reduces the number of periods that can receive outlier payments but makes it possible to select a higher loss-sharing ratio, and therefore, increase outlier payments for qualifying outlier periods. Alternatively, a lower FDL ratio means that more periods can qualify for outlier payments, but outlier payments per period must be lower.

The FDL ratio and the loss-sharing ratio are selected so that the estimated total outlier payments do not exceed the 2.5 percent aggregate level (as required by section 1895(b)(5)(A) of the Act). Historically, we have used a value of 0.80 for the loss-sharing ratio, which we believe preserves incentives for agencies to attempt to provide care efficiently for outlier cases. With a loss-sharing ratio of 0.80, Medicare pays 80 percent of the additional estimated costs that exceed the outlier threshold amount.

Using CY 2024 claims data (as of March 13, 2025) and given the statutory requirement that total outlier payments do not exceed 2.5 percent of the total payments estimated to be made under the HH PPS, we proposed an FDL ratio of 0.46 for CY 2026. CMS stated that we would update the FDL, if needed, in the final rule once we have more complete CY 2024 claims data.

We solicited comments on the proposed CY 2026 FDL. The following is a summary of the comments we received and our responses:

Comment: Several commenters opposed the proposed update to the CY 2026 FDL. A commenter recommended maintaining the current FDL for CY 2026. Other commenters expressed concern that CMS is raising the FDL based on potentially fraudulent data, specifically in what they describe as high fraud areas such as LA County. These commenters recommended excluding suspect claims so that legitimate HHAs are not penalized based on flawed data. Another commenter suggested that raising the FDL will make it harder to qualify for outlier payments and could harm agencies caring for high acuity patients.

Response: We remind commenters that the FDL is set such that outlier

payments do not exceed 2.5 percent of total home health payments. A high FDL ratio reduces the number of episodes that can receive outlier payments but makes it possible to select a higher loss-sharing ratio, and therefore, increase outlier payments for qualifying outlier episodes. Alternatively, a lower FDL ratio means that more episodes can qualify for outlier payments, but outlier payments per episode must then be lower. We appreciate the commenters' concerns regarding potential fraudulent billing and its potential impact on the proposed FDL. However, as discussed previously, outlier billing patterns are not always indicative of fraudulent practice. CMS currently includes the most recent and complete claims data when updating the FDL. If CMS excluded the claims the commenter views as outliers from the calculation of the FDL, CMS would need to make thresholds for determining what qualifies as an outlier to be excluded from the analytical sample. In addition, dropping providers with anomalous billing patterns can cause the sample to be much smaller relative to the most recent and complete claims for that given year. It is important to note that providers that have anomalous billing patterns will need further evidence to state definitively whether their activities cannot be connected to fraudulent practices. Depending on the circumstance, anomalous patterns can prompt further review and initiate investigation for evidence of fraud, waste, and abuse.

We appreciate commenters sharing insight into how we can address concerns about potential fraud in the home health market. Cost report fraud and abusive billing behavior are concerns that need to be addressed through the appropriate channels with the authority to pursue enforcement action, such as the hotline for reporting fraud at the following website: https://www.cms.gov/medicare/medicaid-coordination/center-program-integrity/reporting-fraud.

Furthermore, we are statutorily required to ensure that total outlier payments do not exceed the 2.5 percent aggregate level (as required by section 1895(b)(5)(A) of the Act). In the CY 2019 HH PPS final rule with comment period (83 FR 56521), we finalized a policy to maintain the current methodology for payment of high-cost outliers upon implementation of the PDGM beginning in CY 2020 and calculated payment for high-cost outliers based upon 30-day periods of care. We have used the most recent claims data to calculate the FDL ratio since that time. In the CY 2026 HH PPS proposed rule, we stated that we would use the most recent claims data available which is CY 2024 claims data. Using CY 2024 claims data, we found that the FDL ratio would need to be increased from the final CY 2025 FDL of 0.35 to 0.37.

Final Decision: With updated CY 2024 claims data (as of July 11, 2025) and given the statutory requirement that total outlier payments not exceed 2.5 percent of the total payments estimated to be made under the HH PPS, we are finalizing an FDL ratio of 0.37 for CY 2026.