There is a number in home health that almost every owner has heard and almost no owner can reconcile with their own bank account. Medicare’s own advisory commission reports that freestanding home health agencies earned a 21.2 percent margin on traditional Medicare in 2024. Owners read that, look at their year end statements, and wonder what they are doing wrong.

Usually they are doing nothing wrong. The same commission, in the same report, on the same set of agencies, puts the all payer margin at 5.0 percent. Both figures are correct. The distance between them is the most important thing a home health owner can understand before going to market, because it is the first thing a competent buyer takes apart.

This article is about what that gap is made of, why it has widened, and what an owner can do about it in the twelve months before a sale. Every figure below comes from a federal or congressional primary source and is linked so you can check it yourself.

Two margins, one agency, sixteen points apart

In its March 2026 Report to the Congress, the Medicare Payment Advisory Commission reports two profitability figures for the same population of freestanding home health agencies in 2024:

• Fee for service Medicare margin: 21.2 percent. What the agency earns on the traditional Medicare book alone, revenue from those patients measured against the cost of caring for them.
• All payer margin: 5.0 percent. The same agencies across everything they do, including fee for service Medicare, Medicare Advantage, Medicaid, managed Medicaid, commercial and private pay.

That is a 16.2 point spread, and it is not a measurement artifact. It is the arithmetic of a business where one payer pays well above cost and the rest of the book does not. MedPAC also reports the spread inside the fee for service figure itself: the agency at the 25th percentile earned 5.7 percent on traditional Medicare, and the agency at the 75th percentile earned 31.0 percent.

So there are really two questions a buyer is asking when they look at your financials. What share of your revenue comes from the payer that pays above cost, and where do you sit inside that very wide distribution.

A seller who can answer both questions with their own data controls the conversation. A seller who presents one blended margin invites the buyer to assume the worst about the composition behind it.

Why the gap exists: Medicare is now majority Medicare Advantage

The single structural fact behind the spread is that the payer paying 21.2 percent above cost now covers a minority of Medicare beneficiaries.

According to the Medicare Monthly Enrollment data published by the Centers for Medicare and Medicaid Services, in May 2026 there were 70,465,854 Medicare beneficiaries. Of those, 36,068,859 were enrolled in Medicare Advantage and 34,396,995 remained in Original Medicare. Medicare Advantage is 51.2 percent of the program.

The direction of travel matters more than the level. Using the same CMS series, annual national figures:

• 2017: 58,456,670 beneficiaries, of whom 33.9 percent were in Medicare Advantage.
• 2025: 69,476,456 beneficiaries, of whom 50.9 percent were in Medicare Advantage.

Medicare grew by 18.9 percent over that period. Original Medicare shrank by 11.7 percent, from 38,667,256 beneficiaries to 34,133,868. The program got substantially bigger, and the part of it that pays home health above cost got smaller.

This is not a niche exposure that only some agencies carry. MedPAC reports that nationwide, agencies serving only fee for service Medicare beneficiaries account for just 8 percent of home health agencies. Ninety two percent of agencies are already running both books. The blended margin is the normal condition of the industry, not an outlier.

What happened to the traditional Medicare book

CMS publishes annual home health utilization by state, covering traditional Medicare only. The calendar year 2025 file was released on September 1, 2026. Summing all fifty five reporting jurisdictions gives the national picture, and the eight year trend is the clearest statement of the problem available anywhere in the public record.

Traditional Medicare home health	CY2017	CY2025	Change
Patients served	3,432,475	2,670,830	down 22.2 percent
Visits delivered	106,540,952	65,736,461	down 38.3 percent
Program reimbursement	18.12 billion dollars	16.44 billion dollars	down 9.3 percent

Three quarters of a million traditional Medicare home health patients are gone since 2017, and more than forty million visits with them, in a period when the Medicare population grew by almost nineteen percent.

One honest qualification, because the story is not a straight line down. The low point was calendar year 2023, at 2,564,861 patients. The 2025 figure is 4.1 percent above that trough, and 2024 and 2025 are essentially flat against each other. The federal book stopped falling about two years ago. It has not started growing.

That stabilization is genuinely relevant to timing, and it is a better argument for a seller than the eight year decline is. It says the erosion has found a floor rather than that it is about to reverse.

The remaining episodes pay more and contain less care

The same CMS files show what happened inside the shrinking book, and this is the part most owners have felt without having the numbers for it.

• Average reimbursement per patient rose from 5,279 dollars in 2017 to 6,156 dollars in 2025, up 16.6 percent.
• Average visits per patient fell from 31.0 to 24.6, down 20.7 percent.
• Average reimbursement per visit rose from about 170 dollars to about 250 dollars, up 47.1 percent.

MedPAC describes the same dynamic from the cost side. Cost per 30 day period rose just 0.2 percent in 2024, because growth in cost per visit was offset by a reduction in the number of in person visits per period. The commission is explicit that agencies have been able to hold margins by reducing visits, and it has been saying so for years.

For a seller this cuts two ways, and a buyer will raise both.

The favorable reading is that the traditional Medicare episode is now a high value unit of work. The unfavorable reading is that part of your margin was earned by delivering fewer visits per episode, which is exactly the behavior CMS builds behavior adjustments to claw back. A buyer who models your margin forward will ask whether it survives a rate environment specifically designed to remove it.

How a buyer takes your income statement apart

Given the above, here is what an experienced home health buyer actually does with your financials. None of it is exotic. It is simply what the margin gap forces.

They split revenue by payer before they look at anything else

Traditional Medicare, each Medicare Advantage plan separately, Medicaid and managed Medicaid separately, commercial, and private pay. A blended number tells them nothing, because the whole point is that the components behave differently. If you cannot produce this split, the buyer builds it from your claims data and you lose the chance to explain anything in it.

They allocate cost the same way

This is where most agencies have never done the work. Visits are visits in the scheduling system, but a Medicare Advantage visit usually carries authorization work, more frequent recertification, and slower cash. If you have never allocated back office and intake labor across payers, you do not actually know which parts of your book are profitable. The buyer will make an assumption, and the assumption will not flatter you.

They age receivables by payer, not in aggregate

A blended days sales outstanding figure hides the thing that matters. Denial rates and authorization turnaround by plan are what determine working capital at closing, and working capital negotiations are where a meaningful amount of purchase price quietly moves.

They test referral concentration against payer concentration

These are usually the same risk wearing two coats. An agency fed by one hospital system is often also exposed to whichever plans that system steers to. A buyer wants to know what happens to the traditional Medicare share if one referral relationship changes hands.

The supply side: 11,494 agencies and a smaller federal book

The Home Health Agency Enrollments file published by CMS, dated July 17, 2026, lists 11,494 distinct Medicare enrolled home health agencies. Of those, 10,120, or 88.0 percent, are proprietary rather than nonprofit or government. California alone accounts for 2,924 of them, 25.4 percent of the national total, with Texas second at 1,680.

Put the two datasets together and the average Medicare enrolled agency served roughly 232 traditional Medicare patients in calendar year 2025. That is a computed average across a very uneven distribution, not a benchmark, and it is worth treating as a rough scale marker rather than a target. But it does explain something owners experience directly: the federal book is thinly spread across a large number of small agencies.

For comparison, MedPAC reported over 12,000 agencies certified to participate in Medicare in 2024. The count is coming down, which is what you would expect in a sector where the best paying payer is shrinking and consolidation has been running for several years.

What this means for a seller is uncomfortable but useful. Scarcity is not going to do the work for you. There are a lot of agencies, most of them for profit, most of them small, and a buyer with capital has choices. Differentiation comes from the composition and the documentation of your book, not from the existence of your license.

What CY2027 does to the arithmetic

Two separate things are moving, and they are frequently confused with each other.

First, the rule that is already in motion. CMS published the Calendar Year 2027 Home Health Prospective Payment System rate update proposed rule on July 6, 2026, at 91 FR 41216. Among other things, it proposes a temporary behavior adjustment and a recalibration of case mix weights, functional impairment levels, comorbidity subgroups, and low utilization payment adjustment thresholds. The comment period closed on August 31, 2026. A final rule normally follows in the autumn for a January 1 effective date.

Second, the recommendation that is not a rule. MedPAC recommends that Congress reduce the 2026 base payment rate for home health agencies by 7 percent for calendar year 2027. That recommendation passed the commission 17 votes to nothing. It is advice to Congress, not policy, and MedPAC is explicit that it is not intended to be additive to the adjustments already required by the Bipartisan Budget Act of 2018.

Even taking the required adjustments into account, MedPAC projects the fee for service Medicare margin for freestanding agencies at 19 percent in 2026, down from 21.2 percent in 2024 and still far above cost. For context, the commission puts the average fee for service margin from 2001 through 2023 at 17.2 percent, and the 2019 figure at 15.4 percent.

The practical translation for a seller is this. The traditional Medicare book remains the most valuable revenue in home health even after another round of rate pressure, and the regulatory overhang is real but it is not the cliff it is sometimes described as. What a buyer discounts is not the existence of rate risk. It is an inability to show which part of the income statement that risk actually touches.

What an owner can do in the twelve months before a sale

1. Build twenty four months of revenue by payer, monthly. Traditional Medicare, each Medicare Advantage plan on its own line, Medicaid and managed Medicaid separately, commercial, private pay. Twelve months is not enough to show seasonality or to survive one bad quarter.
2. Allocate direct and indirect cost across those same lines. This is the highest value piece of preparation available to a home health owner, and almost nobody arrives with it. It is what turns a 5.0 percent blended margin from a weakness into an explanation.
3. Age receivables by payer and track denials by plan. Twenty four months, with authorization turnaround where you can measure it. This is a working capital argument, and working capital is real money at closing.
4. Document visits per episode and the clinical rationale behind them. If your visits per period sit below the national average, a buyer will ask whether that is efficiency or under service. Have the answer in writing, from your clinical leadership, before anyone asks for it.
5. Map referral sources against payer mix. Name the concentration before the buyer finds it. A known and explained concentration gets priced. A discovered one gets punished.
6. Do not re-engineer the payer mix in the last ninety days. Dropping a Medicare Advantage contract right before going to market reads as preparation for a sale rather than a durable business decision, and it invites more diligence, not less. If a contract genuinely should go, change it early enough that the agency posts real results without it.
7. Get enrollment and ownership records clean. Enrollment status, CCN, ownership disclosures, and any pending change of information. Transfer mechanics have stalled more home health deals in the past year than valuation disagreements have.

What the margin gap does not decide

It is worth being precise about the limits of this argument.

• It does not override owner dependence. An agency where the selling owner is also the clinical manager and the main referral relationship has a transition problem that no payer analysis fixes.
• It does not override geography. Local labor markets for nurses and therapists, local competitive density, and local Medicare Advantage penetration all move value in ways a national average cannot describe.
• It does not produce a multiple. There is no published, verifiable figure that converts a given payer mix into a purchase price multiple, and anyone who quotes you one over the phone is guessing. We deliberately do not print one here for that reason.
• It does not replace clean financials. Accrual basis statements with owner compensation and personal expenses clearly bridged will do more for your price than any payer analysis available to you in a year.
• It does not change the survey and certification picture. A deficiency history or an open plan of correction is priced separately, and a strong payer mix does not offset it.

Where this fits with the rest of the home health picture

We wrote in August about the nationwide enrollment moratorium and the decision point it reaches later this year, in The Home Health and Hospice Enrollment Freeze Reaches Its First Decision Point. That piece is about whether a transaction can happen at all, and on what mechanics. Earlier we covered the buyer’s checklist in What Buyers Look For in a Home Health Agency in 2026.

This article sits underneath both of them. The moratorium decides whether you can transact. The checklist describes what a buyer wants to see. The margin gap is what the buyer is actually measuring when they look at what you show them.

You can see how we work in this sector on our home health agency valuation and sale process page. Current inventory gives a sense of what is trading right now, including a Medicare certified home health agency in Virginia, a San Diego agency that is exempt from the 36 month rule, and a Medicare and Medicaid certified agency in Phoenix. Those are examples of live inventory rather than comparables for any particular agency.

If you are twelve to twenty four months from an exit, the prepare for your exit section of our seller learning center covers the wider readiness work. If you want a confidential read on where your agency stands, including a look at your payer composition, contact us. Vallexa Advisors works on a success fee basis, so the first conversation costs you nothing but an hour.

Frequently asked questions

Sources

• Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy, March 2026, Chapter 8, Home health care services. Fee for service Medicare margin, all payer margin, margin percentiles, 2026 margin projection, and Recommendation 8.
• Centers for Medicare and Medicaid Services, Medicare Monthly Enrollment, national figures for May 2026 and annual national figures for 2017 and 2025.
• Centers for Medicare and Medicaid Services, Medicare Home Health Patients and Visits by State, calendar year 2017, 2023, 2024 and 2025 files. National totals computed by summing all reporting jurisdictions.
• Centers for Medicare and Medicaid Services, Home Health Agency Enrollments, file dated July 17, 2026. Distinct agency count, proprietary share and state distribution computed from the published file.
• Calendar Year 2027 Home Health Prospective Payment System Rate Update proposed rule, 91 FR 41216, published July 6, 2026, comment period closed August 31, 2026.

This article is general information about market conditions and is not legal, tax, accounting or investment advice, and it is not a valuation of any specific agency. Figures are current as of September 15, 2026. Confirm the application of any payment rule or payer contract to your agency with your own advisors.