Home Care Providers Under Pressure: Navigating Medicaid And Medicare Risks

Post-acute care providers are entering one of the most challenging regulatory and financial environments in recent memory. Three key elements are influencing the 2026 landscape: (1) sweeping Medicaid restructuring under the the One Big Beautiful Bill Act, (2) uncertainty surrounding the 80/20 Medicaid Access Rule, and (3) increased audit scrutiny under Medicare’s Patient-Driven Groupings Model. Adding to these pressures, federal nationwide moratoria on new Medicare enrollments for hospice and certain home health providers have further constrained market entry and, in some cases, expansion opportunities. These dynamics are compressing margins, disrupting enrollment and demanding sharper compliance discipline.

The OBBA’s constraints on home care financing

OBBBA, signed into law on July 4, 2025, represents the largest rollback of federal Medicaid support in American history, with the Congressional Budget Office (CBO) projecting roughly $911 billion in net Medicaid cuts between 2025 and 2034. The law impacts home care funding from multiple angles, imposing new work requirements, requiring biannual eligibility redetermination, and increasing administrative burden. CBO estimates the new 80-hour monthly work requirement for non-disabled adults aged 19 to 64 could save $326 billion but also remove coverage from approximately 1 to 2 million adults with disabilities. The biannual assessments are projected to save $191 billion but may cause enrollment issues and empty care slots for providers.

Notably, OBBBA bans new or increased provider taxes and phases down the “safe harbor” tax cap from 6% to 3.5% by 2032, reducing federal matching funds by an estimated $183 billion. States have long used provider taxes to secure federal matching dollars and fund supplemental Medicaid payments, but that mechanism is now effectively frozen. The law also caps state-directed payments at 100% to 110% of Medicare rates, further constraining states’ ability to set reimbursement levels that keep pace with rising labor costs. Industry analysts forecast reimbursement shortfalls of 3% to 7% for 2026–2027, widening the gap between operational needs and amounts that states are actual able to pay.

The 80/20 Rule: Regulatory limbo for personal care agencies

Alongside these Medicaid financing cuts, personal care and home health aide agencies are contending with the unresolved status of the 80/20 provision in the Ensuring Access to Medicaid Services Rule. Finalized in April 2024, this rule requires that at least 80% of Medicaid payments for homemaker, home health aide and personal care services be spent on direct care worker compensation, leaving just 20% for administrative overhead, compliance, and margin. Industry stakeholders argue that the provision fails to account for administrative burdens of federally mandated functions like Electronic Visit Verification, quality reporting and nurse supervision — potentially forcing some providers, especially small and rural agencies, to close.

Although the rule carries a six-year implementation timeline, the current administration has signaled strong interest in rescission. In February 2025, nine Republican members of Congress urged President Trump to repeal the provision, calling it an unfunded mandate introduced “without a basis in data, actual experience, or an understanding of costs associated with the provision of home-based care.” The National Alliance for Care at Home has expressed confidence in administrative repeal, with its senior director, stating at the organization’s Financial Summit last July, “We are feeling confident we will not have 80/20 going into effect.”

In February 2026, CMS announced an 18-month delay in enforcement of certain Access Rule provisions, and major providers have reported indications that repeal may come sooner than expected. Nevertheless, nothing has been formally rescinded, and the provision was not included in OBBBA because CBO concluded its repeal would not save money. Agencies remain in regulatory limbo, unable to plan with certainty.

PDGM audit exposure: Documentation is the front line

On the Medicare side, home health providers face growing audit risk under PDGM. CMS’s Comprehensive Error Rate Testing program found the 2023 improper payment error rate for home health claims was 7.7%, representing approximately $1.2 billion in payment inaccuracies. OIG audits have identified recurring problems such as unsupported diagnosis codes, invalid face-to-face encounters and skilled services that fail to meet Medicare’s coverage requirements. Top denial triggers in 2025–2026 include late or missing Notices of Admission, face-to-face certification errors, insufficient medical necessity evidence and OASIS/PDGM mismatches.

For 2026, CMS finalized recalibrated PDGM case-mix weights using 2024 utilization data, along with updated LUPA thresholds, functional impairment levels and comorbidity subgroupings. These recalibrations mean small variations in coding accuracy, functional scoring and visit utilization can significantly shift reimbursement. Agencies treating OASIS as routine data entry rather than a clinical reasoning framework risk inconsistent scoring, creating exposure in both quality reporting and audit response. Providers must align functional scoring, diagnosis coding and narrative documentation so that clinical records tell a coherent, defensible story before claim submission. Internal pre-bill audits, clinician education on PDGM-specific documentation and real-time OASIS validation are now prerequisites for financial survival as the error margin continues shrinking.

Conclusion

In 2026, post-acute care providers face a perfect storm of financial and regulatory pressures from OBBBA-driven Medicaid cuts and enrollment churn, the uncertain fate of the 80/20 rule and heightened Medicare audit scrutiny under PDGM. CMS’s nationwide moratoria on new Medicare enrollments for hospice and certain home health providers add another layer of constraint, effectively freezing market entry and, in some cases, expansion plans for affected agencies while the agency addresses program integrity concerns. To navigate these challenges, agencies must prioritize proactive compliance, maintain rigorous documentation practices, and build operational flexibility to adapt to shifting reimbursement landscapes.

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