The 80/20 Rule Is Coming for Home Health
Est. read time: 5 minutes
The 80/20 Rule Is Coming for Home Health — And the Agencies Preparing Now Will Have the Advantage
I spent years on the operating side of healthcare before I ever prepared a tax return — running a pharmacy that served long-term care facilities, managing reimbursement timelines that never matched payroll timelines, and learning the hard way that a business can be profitable on paper and still run out of cash in real life. So when I talk to home health and hospice owners about what's coming with the 80/20 rule, I'm not talking about it as an outside advisor. I'm talking about it as someone who has lived the version of this pressure before.
Here's what's coming, and why I think the agencies who get ahead of it now are going to be in a much stronger position than the ones who wait.
What the 80/20 Rule Actually Requires
At the federal level, CMS finalized a rule requiring that at least 80% of Medicaid payments for certain home and community-based services (personal care, homemaker, and home health aide services) go directly to worker compensation, rather than administrative costs, overhead, or profit. The national compliance deadline is 2030 — which sounds far off, but the systems and reporting needed to prove compliance take real time to build.
This isn't a hypothetical. It's already showing up at the state level. Indiana's HEA 1120, effective July 1, 2025, set its own passthrough requirements, 70% for personal care and homemaker services, 60% for attendant care, and this was years ahead of the federal deadline.
States are moving on this faster than the federal timeline requires, which means agencies in other states should expect similar rules to arrive sooner than 2030, not later.
Why I'm Not Framing This as a Threat
A lot of the content you'll see about the 80/20 rule leans on fear — worst-case scenarios, agencies going under, compliance nightmares. I'm not going to do that because fear doesn't help you make a good decision, and I'd rather give you something you can actually use.
Here's the reframe: this rule rewards agencies that already run on clean numbers, and it penalizes agencies that don't. If you already know your labor cost ratio, your true overhead, and your margin by service line — you're documenting what you already understand. The agencies that treat this as a compliance fire drill in 2029 are going to be the ones who struggle. The agencies that treat it as a reason to tighten their financial systems now are going to walk into it with leverage: cleaner books, stronger positioning with referral sources and managed care payers, and the ability to show, not guess, that they're compliant.
Clarity creates confidence. Confidence creates better decisions. Better decisions create growth.
Three Things to Start Now
You don't need to overhaul your agency overnight. You need three things in place, and each one compounds the sooner you start.
Know your real labor-to-revenue ratio, by payer and by service line. Most owners can tell you overall payroll as a percentage of revenue. Far fewer can break it out by Medicaid HCBS line specifically, which is exactly what a passthrough requirement measures.
Separate direct care compensation from administrative and overhead costs in your books, clearly and consistently, so the number CMS or your state wants is one your financial reports already produce — not one you have to reconstruct after the fact.
Build a cash-flow forecast that accounts for reimbursement timing. Compliance reporting is one thing; staying solvent while you meet it is another. If a compensation floor changes your margin structure, you want to see that six months out, not the month it happens.
None of the above requires waiting for a final rule in your state. The financial infrastructure that makes 80/20 compliance easy to prove is the same infrastructure that makes running a healthier business easier, period. That's the part I want home health owners to hear: this isn't just a compliance project. It's a reason to build the kind of financial visibility you should have had anyway.
Ready for a clearer picture of where your agency stands?
Schedule a Business Clarity Consultation with Asante Tax & Consulting. We'll look at your numbers together and talk about what proactive planning could mean for your agency.
Louisa Asante, MBA, EA Founder, Asante Tax & Consulting, LLC
