Home health, hidden basis, points, pricing of hospital level care
Disclaimer: The views and opinions in this piece are entirely my own and do not reflect those of my employer in any way.
If you are interested in joining my generalist healthcare angel syndicate, reach out to trey@onhealthcare.tech or send me a DM. Accredited investors only.
Abstract
Short version of what follows:
• CMS finalized the 2026 home health rule with a headline 2.4 percent payment update, a permanent behavior adjustment of a bit over negative 1 percent, and a one year temporary reduction of about 3 percent, which nets out to roughly a 1.3 percent aggregate cut in Medicare home health spend compared to 2025.
• Under the hood, CMS rebuilt the PDGM case mix weights using very fresh claims data linked to OASIS, refreshed functional impairment levels, expanded comorbidity subgroups well into the triple digits, and reset LUPA thresholds across the groupings.
• At the same time, the 2026 outpatient and ASC final rule hikes OPPS and ASC payment rates by 2.6 percent, sets a new conversion factor around the low ninety dollar range, and expands the ASC covered procedures list by hundreds of codes, including cardiac ablations, advanced endoscopy, and other historically inpatient or HOPD dominated work.
• Put together, you have hospitals with capital constraints, home health agencies facing mild pressure, and a policy environment actively steering more care out of the hospital footprint.
• For anyone investing in RPM, tele rehab, home infusion, DME logistics, or ASC infrastructure and tooling, these rules are basically a fresh term sheet for where hospital-level revenue is going to land by 2026.
Table of contents
1. Why home health suddenly matters again
2. What CMS just did to the home health math
3. Modeling high acuity episodes at home
4. Value based purchasing and the tech ROI problem
5. DMEPOS, logistics, and the messy home based stack
6. OPPS, ASC, and the site of care migration lever
7. How this all looks from an angel investor seat
8. A few concrete theses and things I would actually fund
Why home health suddenly matters again
Hospitals are not abandoning inpatient towers, but financially many of them probably wish they could. They are getting a 2.6 percent bump on outpatient and ASC payments in 2026, which looks fine on paper until you place it next to wage inflation, consumable inflation, and the pleasure of financing capital projects in a rate environment where money still costs real money. At the same time, a good chunk of procedures that used to be glued to inpatient settings can now be done in ASCs or hospital outpatient departments under the refreshed criteria. When CMS adds hundreds of codes to the ASC list, including serious work like certain cardiac ablations or advanced GI procedures, the message is basically that inpatient is no longer the default.
Demand is not politely waiting, either. Aging demographics, Medicare Advantage penetration, and risk based payment models keep pushing more responsibility onto post acute settings. Home health agencies end up in the middle of that shift. They can either be low margin vendors of short visits or the chassis that hospital level acuity rides on when beds are scarce or economics tilt in favor of sending patients home sooner. In a roundabout way, CMS is saying it is open to the latter path if the math holds.
For investors, the 2026 rules shift the implied value of the care continuum. OPPS and ASC get a straightforward rate bump plus more procedures. Home health takes a modest net negative adjustment but avoids a much steeper cut that was on the table. From a direction-of-travel standpoint, CMS is effectively saying home health is central, not peripheral, to the next iteration of federal care delivery incentives. For anyone underwriting virtual care, hybrid home models, care logistics, or non physician home services, this is not noise. It is where the revenue ceiling is being redrawn.
What CMS just did to the home health math
