The home health CY2027 proposed rule means agencies face a headline 2.4% net payment increase that is quietly offset by a temporary 3.0% behavioral adjustment, so the actual cash impact on any given agency depends heavily on case mix and coding. Providers should model the temporary PDGM behavioral adjustment as a rate reduction that applies to the CY2027 30-day base payment rate only, not as a permanent cut. Build a base case that layers the proposed 2.1% payment update, the wage index changes for your service area, and the 3.0% recoupment, then stress test that result against volume assumptions before treating any single number as your CY2027 budget.
CMS issued the proposed rule, CMS-1844-P, on July 1, 2026, and published it in the Federal Register on July 6, 2026. The comment period runs through August 31, 2026, and the policies, if finalized, would take effect January 1, 2027. Nothing in the rule is final yet, which is exactly why now is the moment to run the numbers and, if warranted, submit a comment.
The Headline Numbers in the Home Health CY2027 Proposed Rule
CMS estimates the proposed rule would increase aggregate payments to home health agencies by 2.4%, or roughly $420 million, relative to CY2026. That net figure is the end result of several moving parts stacked on top of each other.
The starting point is a proposed 2.1% home health payment update for agencies that submit the required quality data. That 2.1% reflects a 3.1% market basket increase reduced by a 1.0 percentage point productivity adjustment. Agencies that fail to submit quality data face a 2 percentage point reduction, which would leave them with roughly a 0.1% update instead.
On top of the annual update, CMS applies wage index revisions and case-mix recalibration, which redistribute dollars among agencies based on geography and patient acuity. The single most consequential piece for cash flow, however, is the temporary behavioral adjustment discussed below. Because the temporary adjustment moves in the opposite direction from the update, the “2.4% increase” that shows up in headlines can turn into flat or negative revenue for individual agencies once every factor is applied to their specific mix of episodes.
It is also worth noting what CMS did not propose. The agency stated it is not proposing an additional permanent behavioral adjustment to the CY2027 30-day base payment rate, citing confounding factors in the claims data such as continued case-mix weight recalibration, the transition to OASIS-E, and prior rate reductions. That restraint on the permanent side is meaningful, because permanent adjustments compound year over year while temporary ones do not.
Understanding the Temporary PDGM Behavioral Adjustment
The centerpiece of the home health CY2027 proposed rule is a temporary 3.0% reduction to the national, standardized 30-day payment rate. This is the mechanism CMS uses to recoup what it calls retrospective overpayments tied to the difference between assumed and actual behavior changes under the Patient-Driven Groupings Model (PDGM), which took effect in 2020.
Here is the background in plain terms. When PDGM launched, CMS assumed agencies would change coding and documentation behavior in ways that affected payment. The statute requires CMS to reconcile assumed behavior against actual behavior and to claw back overpayments. CMS now estimates the cumulative PDGM overpayment for CY2020 through CY2025 at approximately $4.9 billion. The proposed 3.0% temporary adjustment would recover roughly $500 million of that total in CY2027, or about 10% of the cumulative amount.
The most important modeling point is this: the temporary adjustment is temporary. CMS has stated the 3.0% reduction would apply to CY2027 only and would not be built into the CY2028 base rate. That distinction matters enormously for multi-year forecasting. A permanent cut lowers the floor for every future year, while a temporary cut lowers only the year it applies to. That said, CMS has been explicit that it may propose additional temporary adjustments in future rulemaking to continue recovering the remaining balance, so agencies should not assume the recoupment pressure disappears after 2027.
Agencies with prior experience translating regulatory reimbursement changes into operating budgets, particularly those that already manage Medicare cost report preparation, will recognize this pattern of headline increases undercut by policy adjustments. It mirrors the dynamic in the FY2026 SNF final rule, where a nominal market basket update was tempered by parity and forecast-error adjustments.
How to Model the Temporary Behavioral Adjustment
Modeling the temporary adjustment well is less about a single formula and more about isolating each variable so you can see which one is driving your result. Work through it in layers.
Start with your CY2026 30-day base payment rate as the anchor. Apply the proposed 2.1% payment update to establish the pre-adjustment CY2027 rate, assuming your agency submits quality data. If your agency has any quality reporting gaps, model the 0.1% update scenario separately so leadership sees the cost of non-compliance in dollars.
Next, apply your service area wage index. Because CMS reweights the wage index annually and often phases in changes, pull your specific core-based statistical area figures rather than relying on a national average. A favorable national update can still net to a decline in a market whose wage index falls.
Then apply the 3.0% temporary behavioral adjustment to the standardized rate. Because this reduction and the update push in opposite directions, run the arithmetic in the correct sequence rather than netting the percentages in your head. Compounding a positive 2.1% and a negative 3.0% is not the same as simply subtracting, and the difference is real money at scale.
Finally, layer in volume and case mix. Reimbursement per 30-day period is only half the equation; total revenue also depends on episode counts and the case-mix weights of your patient population. Build at least three scenarios: a base case at current volume, a downside case reflecting referral softness, and an upside case. For agencies that operate alongside skilled nursing or long-term care lines of business, coordinate this modeling with your broader skilled nursing and long-term care financial planning, since shared overhead and referral relationships link the two.
One practical caution: CMS noted it may use more recent data to set the final CY2027 market basket update and productivity adjustment in the final rule. Treat every figure here as a proposal. Lock your forecast to the proposed numbers for planning, but flag the line items most likely to shift so you can update quickly when the final rule lands.
What Agencies Should Do During the Comment Period
The comment window closes August 31, 2026. Agencies that believe the behavioral adjustment methodology overstates actual overpayments, or that the confounding factors CMS acknowledged warrant a different approach, have a documented opening to say so. CMS itself flagged uncertainty in attributing behavior changes to PDGM, which gives commenters a substantive basis to engage rather than simply objecting to the dollar figure.
Beyond the payment provisions, the proposed rule carries significant Medicare provider enrollment and program integrity changes, including expanded revocation and denial grounds and a proposal to make revocation grounds retroactive to the date of the triggering conduct. These enrollment changes reach far beyond home health and affect providers and suppliers across Medicare, so compliance and revenue cycle teams should review them even if the payment math is your primary concern.
Reimbursement volatility rarely arrives in isolation. The same policy environment that produced this recoupment has driven state-level pressure as well, including the Medicaid financing constraints discussed in our analysis of the OBBBA Medicaid state directed payment caps. Agencies with mixed Medicare and Medicaid revenue should model both tracks together, because a squeeze on one payer changes the tolerance for changes on the other.
Frequently Asked Questions
What is the net payment change in the home health CY2027 proposed rule?
CMS estimates a net aggregate increase of 2.4%, or approximately $420 million, over CY2026. That net figure combines a proposed 2.1% payment update with wage index and case-mix changes and the 3.0% temporary behavioral adjustment. The impact on any individual agency will vary based on geography and patient mix.
What is the temporary PDGM behavioral adjustment for CY2027?
It is a proposed 3.0% reduction to the national, standardized 30-day payment rate that applies to CY2027 only. CMS uses it to recoup retrospective overpayments tied to the difference between assumed and actual behavior changes under PDGM since 2020.
How much money does the temporary adjustment recover, and how large is the total overpayment?
The proposed 3.0% adjustment would recover approximately $500 million in CY2027. CMS estimates the cumulative PDGM overpayment for CY2020 through CY2025 at roughly $4.9 billion, so the CY2027 recoupment represents about 10% of the outstanding balance.
Is the 3.0% behavioral adjustment permanent?
No. CMS has stated the 3.0% reduction applies to CY2027 only and would not be built into the CY2028 base payment rate. However, CMS may propose additional temporary adjustments in future rulemaking to continue recovering the remaining overpayment balance.
When is the comment deadline, and when would the rule take effect?
The comment period closes August 31, 2026. If finalized, the policies would take effect January 1, 2027. Because these are proposals, the final figures could change in the final rule.
How should our agency start modeling the impact?
Anchor to your current 30-day base rate, apply the proposed 2.1% update, layer in your specific wage index, then apply the 3.0% temporary adjustment in the correct sequence rather than netting percentages. Add volume and case-mix scenarios, and build a separate downside case for any quality reporting gaps. A reimbursement advisor experienced with home health and post-acute payment systems can help pressure test the assumptions.
