Navigating the 2025 Home Health Payment Cuts: Survival Tactics for Agency Leaders

The 2025 Payment Cut: What We’re Facing

On January 1, 2025, CMS enacted a 1.975% Medicare rate cut for home health services, compared to a proposed 4.067% decrease. While less severe than initially feared, this marks another year of shrinkage in base rates that have already been trimmed by regulatory changes since the Patient-Driven Groupings Model (PDGM) rolled out in 2020[1].

The impacts? Reduced revenue, tighter margins, and continued agency closures nationwide. According to industry tracking, hundreds of agencies have shuttered since PDGM’s launch, with tens of millions in lost home health visits and mounting reports of “care deserts” emerging across numerous counties[1].

Understanding the Regulatory Landscape

This year’s cut isn’t an isolated event. It’s the latest in a series of federal moves recalibrating how Medicare pays for home health services—including productivity adjustments, market basket tweaks, and behavioral offsets intended to control costs[2]. These changes come as operating costs (wages, fuel, insurance, compliance) continue to outpace federal reimbursement.

Crucially, the MedPAC report for 2022 still showed average Medicare margins for home health agencies above 20%[5]. But these are averages—margins vary wildly across states, urban vs. rural, and by agency scale. Many agencies are now in a make-or-break scenario.

Financial Survival Tactics for 2025

1. Diversify Revenue Streams

Don’t let your agency live or die at Medicare’s whim. Savvy operators are:

• Expanding private-pay services: Consider adding companion care, private-duty nursing, or non-skilled support programs not bound to Medicare rates.

• Growing Medicaid and VA lines: Specialized billing tools (and patience!) can unlock new value streams.

• Building insurance contracts and MA relationships: Engage proactively with managed care plans; even modest volume can help backstop traditional Medicare declines.

This diversification increases your operational resilience and cushions against payment volatility[4].

2. Reimagine Operational Efficiency

Your processes need to be razor sharp. Key moves:

• Workflow audits: Map every major task. Automate where possible. Eliminate duplicative steps.

• Vendor renegotiations: Revisit your biggest contracts (from staffing to supplies). Loyalty is good, but cost savings matter more in a margin squeeze.

• Scheduling strategy: Use advanced scheduling software to maximize care delivery while keeping mileage and labor costs in check.

Small process refinements can unlock big savings—especially when multiplied across hundreds or thousands of visits per year.

3. Maximize OASIS Accuracy

Each percentage point lost to documentation or coding errors stings more than ever. Invest in:

• Frequent staff OASIS training: Elevate understanding around the most commonly misunderstood sections.

• Quality assurance programs: Run regular internal audits before submission.

• Real-time feedback: Use technology to flag missing or mismatched data before claims are filed.

With payment directly tied to OASIS accuracy, there’s no margin for error[2].

HR and Workforce Management: Doing More with Less

Staffing is—to put it mildly—a daily challenge. The best agencies are winning this war through:

• Retention first: Invest in your team. This means better onboarding, flexible scheduling, and meaningful recognition programs.

• Leveraging tech: Virtual visits, telehealth, and remote patient monitoring reduce travel time and unlock more staff productivity per payroll dollar.

• Smart recruitment: Pipeline partnerships with local training programs and community colleges can help maintain a steady influx of new hires.

Hang onto your talent and keep your value proposition as an employer compelling, even in a tight labor market[1].

Strategic Partnerships: The New Growth Engine

Gone are the days of “one size fits all.” Successful agencies are thriving by forging:

• Interdisciplinary partnerships with primary care, hospitals, and post-acute networks.

• Community collaborations: Think joint marketing, transitional care programs, or co-branded outreach with trusted local organizations.

• Participation in innovative payment models and Accountable Care Organizations (ACOs), positioning your agency as an indispensable part of the regional value-based care ecosystem.

If your agency is considering expanding its network or evaluating M&A as a resilience tactic, consider the insights shared here.

Preparing for 2026: What’s Next?

Just as you adapt to 2025’s new baseline, the industry faces an even steeper proposed cut for 2026—a 6.4% payment reduction (over $1.13 billion)—with layered factors from market basket, productivity, and multi-year clawbacks. The comment window for this proposed rule is open until August 29, 2025[3].

Forward-looking leaders are:

• Stress testing their finances for further reimbursement losses

• Educating staff and leadership on further PDGM and Value-Based Purchasing changes

• Advocating on the record—making their agency’s voice heard by submitting public comments to CMS

• Planning for all contingencies, including evaluating the potential for business sale, merger, or operational realignment

For more detailed guidance on getting ahead of these changes, visit our 2025 regulatory insights page.

Action Steps You Can Take Now

1. Audit your payer mix. Move toward less reliance on any one payer.

2. Update your budget assumptions. Reflect new base rates and model further downside.

3. Train staff—again. OASIS, PDGM, HHVBP, and any new compliance changes. Leadership needs to walk the floor on this.

4. Talk to your partners and payers. Find new collaboration opportunities and prepare the case for contract renegotiation.

5. Watch the regulatory calendar. Mark August 29, 2025, for the next CMS comment window deadline.

6. Evaluate your agency’s future. With the landscape shifting, this could be a good time for succession planning or exploring strategic combinations.

Need a confidential consult or second opinion on your strategic path? Check out Senate Healthcare’s partnership resources.

Final Thoughts

The coming year may be the most challenging yet for home health agencies—but it’s an environment that rewards agility, creativity, and bold leadership. By moving quickly and smartly, you can preserve your agency’s mission and be ready for whatever Washington sends next. Stay tuned for updates, network with peers, and above all—don’t go it alone.

References

1. Home Health Care News. “‘The Largest Cut Ever Proposed’: CMS Proposed Home Health Payment Rule Shakes Industry Leaders.” HHCN, July 2025. https://homehealthcarenews.com/2025/07/the-largest-cut-ever-proposed-cms-proposed-home-health-payment-rule-shakes-industry-leaders/

2. Alliance for Care at Home. “The Alliance Responds to CY 2026 Home Health Proposed Rule.” Alliance for Care at Home, June 2025. https://allianceforcareathome.org/the-alliance-responds-to-cy-2026-home-health-proposed-rule/

3. Hospice News. “How Proposed Home Health Cuts Could Impact Hospices.” Hospice News, August 2025. https://hospicenews.com/2025/08/01/how-proposed-home-health-cuts-could-impact-hospices/

4. McBee Associates. “Unlocking Success in 2025: Strategic Insights on the Home Health Final Rule.” McBee, June 2025. https://mcbeeassociates.com/insights/blog/unlocking-success-in-2025-strategic-insights-on-the-home-health-final-rule-blog/

5. MedBridge. “Industry Update: 2024 Home Health Final Rule.” MedBridge, November 2023. https://www.medbridge.com/blog/industry-update-2024-home-health-final-rule