Wells says CMS proposed rates worse than expected, final rate likely to improve

Wells Fargo analyst Stephen Baxter notes that the Centers for Medicare and Medicaid Services proposed a -6.4% rate update for Home Health in CY26, worse than expected. Wells would expect the final rate to improve. It notes that a material contributor to rate comes from recouping over payments, which could take some time. The firm assumes 55%-60% of Pennant Group’s (PNTG) Home Health revenue comes from FFS Medicare. If the proposed rate holds vs. a flat assumption, Wells estimates 8.9% headwind to its 2026 adjusted EBITDAR estimate of $133M. With that said, the firm believes Pennant may find efficiencies to partially mitigate the headwind. Regarding BrightSpring Health (BTSG) (BSTG), the firm assumes about 90% of its 2026 “Home Health Care” revenue estimate of $868M is attributed to Home Health & Hospice. Assuming half of the Home Health & Hospice is Home Health implies $391M HH revenue. Assuming 55%-60% of that revenue is from FFS Medicare, Wells estimates a -6.4% rate delta would lead to 2.2% headwind to 2026 EBITDA.