Telesto Insight Series · Home-Based Care · Q2 2026

The margin squeeze at the door: why 2026 is the year home-based care sponsors stop defending supply chains, and start building a value creation edge.

The model has always run on a fixed ceiling and a variable floor. What is different in 2026 is that the floor is rising and the ceiling is falling at the same time, and three policy vectors are responsible: the CY2026 CMS final rule trimming aggregate home health payments, Section 301 tariffs compounding through a supply base where stacked effective duties on China-sourced medical devices can reach the 50%+ range and where roughly a quarter of finished drugs depend on Chinese active-ingredient inputs, and BIOSECURE-style language now advanced through the FY2026 National Defense Authorization Act. Most operators will absorb the squeeze. A small cohort will use it to widen the gap.

Written ForPE Sponsors · Operating Partners · Portco CEOs FocusSkilled HH · Personal Care · Hospice · Home Infusion & DME FormatStrategic Insight · 14 min read · April 21, 2026

By the numbers

Four numbers that frame the squeeze.

−4.0%
Combined gross behavioral adjustments to the CY2026 home health base rate before the market-basket update is applied: a −1.023% permanent adjustment plus a −3.0% temporary recoupment. CMS reports the net update after market basket as a smaller aggregate reduction (figures and methodology per the published Final Rule).
CMS CY2026 HH PPS Final Rule (verify exact percentages and net update against the published rule)
~50%+
Indicative stacked effective US duty on medical devices imported directly from China for tariff-exposed HTS lines, combining the baseline tariff with Section 301 and, where applicable, IEEPA duties. Effective rates vary materially by HTS code and product category.
Telesto analysis based on USTR Section 301 schedules and 2025 industry analyses
~25%
Indicative share of US-consumed finished drugs that depend on Chinese active pharmaceutical ingredient inputs, directly or through Indian generic supply chains. Estimates vary by source and definition (volume vs. dosage units vs. mass).
ASPE; Coalition for a Prosperous America (verify against the most recent ASPE issue brief)
$2,038
National standardized 30-day HH PPS episode rate for CY2026, effectively flat versus CY2025 after behavioral adjustments and the market-basket update.
CMS CY2026 HH PPS Final Rule (verify exact figure against the published rule)

Live signals · April 2026

Three catalysts, one squeeze.

Each of these policy catalysts is independently significant. Together they form a coordinated margin compression event for home-based care operators. Reimbursement contracts while input costs rise, with no natural pass-through mechanism under fixed-payment structures.

Three converging catalysts, 2026
CMS CY2026
Home health payment is effectively flat year-on-year at roughly $2,038 per 30-day episode. The CY2026 final rule applies a market-basket update on the order of 2.4%, then absorbs it through a permanent behavioral adjustment of approximately −1.023% and a temporary recoupment of approximately −3.0% against the PDGM-era overpayment estimate. The net effect is a small aggregate reduction in the aggregate payment level (verify exact percentages against the published Final Rule). Case-mix weights have been recalibrated using CY2024 claims and the rule rebalances payment groups under the PDGM model. Operators who relied on market-basket growth to absorb input inflation have lost that cushion.
Tariffs
Medical device and DME exposure now runs from a low baseline tariff to stacked effective rates that can reach 50% or more depending on country of origin and HTS code. For specific tariff-exposed product lines (e.g., syringes and needles, certain glove categories, respirators and face masks), Section 301 and IEEPA stacking has produced effective rates well above the headline number, with several categories scheduled to step up further during 2026 (verify against the most recent USTR Federal Register notices). The US imported on the order of $11.8B of medical devices from China in 2024 (USITC DataWeb / Census USA Trade, full-year 2024). The November 2025 US-China tariff truce extension is scheduled to run through November 10, 2026; the underlying Section 301 structure remains in place underneath it.
BIOSECURE-style language
BIOSECURE-style language has been advanced through the FY2026 National Defense Authorization Act process; the specific provisions, scope, and enforcement timeline should be confirmed against the enacted bill text and conference report. The intent of the legislation is to restrict federal procurement of biotechnology equipment and services from designated companies of concern, with the named-entity list updated administratively. Indirect exposure is broader than the named-company list implies. Indian CDMOs (Aurobindo and peers) source a meaningful share of raw materials from China, and India imports a substantial share of its APIs from China — published estimates cluster around 55-70% depending on the source, year, and category (verify against India's Department of Pharmaceuticals data and recent ASPE/USP reporting). Chilling effects on sourcing decisions were already visible in 2025. Active US drug shortages tracked by FDA / ASHP exceeded 100 in Q3 2025 (as of the relevant quarterly tracker), including hospice-relevant generics such as morphine.

The unit economics

What this looks like at the episode and per-patient-day level.

Home-based care businesses do not pass through cost inflation. Reimbursement is set by CMS for skilled home health, home infusion, and hospice, and by state Medicaid waivers for personal care. The question is how much margin absorbs the squeeze, and where. The ranges below frame directional impact. Actual exposure varies materially by payer mix, geography, and sourcing posture.

Exhibit 1
Illustrative margin compression by sub-segment, CY2026
Applied to a typical mid-market home-based care operator at 10-15% base EBITDA.
Skilled home health
−120 to −180 bps
Payment freeze combined with recalibrated case-mix weights and medical supply inflation on wound care, IV supplies, and PPE. Mileage and fuel exposure on clinical visits amplifies the impact. Telesto analysis
Non-medical home care
−40 to −90 bps
Lowest direct supply chain exposure. Fuel and mileage pressures remain real. Caregivers average 70¢ per mile under the IRS 2025 standard. Private-pay segments can reprice. Medicaid waiver segments cannot. Telesto analysis
Hospice
−80 to −160 bps
Per-diem payment structure plus direct pharmacy cost exposure leaves no natural hedge. Morphine, hydromorphone, and sterile injectables concentrate in generic markets sourced largely from China and India APIs. Shortages force substitution to higher-cost therapies. Telesto analysis
Source: Telesto analysis as of April 2026, applied to a representative mid-market home-based-care P&L (10-15% base EBITDA, payer mix and supply mix typical of Medicare-certified operators). Inputs: CMS CY2026 HH PPS Final Rule; USTR Section 301 schedules; published industry-supply pricing. Bps ranges are directional, not forecasts; actual exposure varies materially by operator. Methodology summary available on request.
Exhibit 2
Home infusion and DME, a different exposure curve
Home infusion carries the highest gross exposure and the most value creation headroom from sourcing and payer strategy.
Direct drug cost exposure
150 to 300 bps
API concentration risk on sterile injectables and specialty infusibles, partially offset by IRA negotiated prices for first-cycle drugs (Stelara, Enbrel and others) effective in CY2026, and by accelerating biosimilar competition. CMS-published Maximum Fair Prices for first-cycle negotiated drugs reflect substantial percentage discounts to pre-negotiation list — verify exact MFP figures against the CMS Negotiation Program schedule effective January 1, 2026. Telesto analysis
DME pump and supply exposure
80 to 140 bps
Pumps, IV sets, tubing, and catheters have shown 15-30% price volatility on tariffed imports. The Section 301 exclusion covering enteral syringes is scheduled to expire on or about January 1, 2026 (verify against the most recent USTR Federal Register exclusion-extension notice). Telesto analysis
Net margin impact
−150 to −280 bps
Tight spreads between Medicare Part B ASP+6% reimbursement and acquisition cost leave minimal absorption capacity. Biosimilar-ready operators can convert the pressure into margin expansion. Telesto analysis
Source: Telesto analysis as of April 2026, applied to a representative home-infusion / DME P&L. Inputs: CMS Home Infusion Therapy and Part B rate schedules; CMS Maximum Fair Price schedule for first-cycle IRA-negotiated drugs effective January 1, 2026; published biosimilar pricing; USTR Section 301 schedules. Bps ranges are directional, not forecasts. Methodology summary available on request.

Sub-segment analysis

How the three vectors hit each home-based care model.

Supply chain exposure is not uniform across home-based care. Structural differences in reimbursement, clinical intensity, and input mix create materially different risk profiles, and materially different value creation opportunities for sponsors and operators who act on them.

Skilled home health
Medicare-certified post-acute nursing and therapy paid under PDGM at $2,038 per 30-day episode. The CY2026 rule is effectively flat at the national level after behavioral and temporary adjustments.
−120 to −180 bps
Margin exposure
Devices & DME
Medical-surgical supplies per episode (wound care, catheters, IV starts, drainage systems, PPE, disposables) run $60-140 per episode at pre-tariff pricing. Tariff pass-through at current Section 301 rates adds an estimated 8-15% to landed supply cost, concentrated in Chinese-sourced single-use disposables. Against a $2,038 episode rate and 10-15% base EBITDA, supply cost inflation alone compresses margin by 40-80 bps before any labor or mileage impact is counted.
Pharmaceutical
Direct pharma spend is limited for skilled home health, since drugs are typically billed under Part D or patient responsibility. However, wound care agents, negative pressure therapy supplies, and injectable nursing-administered medications remain exposed. The CY2026 separate payment for disposable NPWT, set at $270.09 CPI-adjusted, is narrow against acquisition cost volatility.
Energy & logistics
The IRS 2025 business mileage rate of 70¢ per mile understates true clinical-visit cost when visits are short and route density is low. Every 10% rise in fuel feeds through roughly 15-25 bps at the operator level for rural and exurban agencies. Route density becomes a margin lever. Operators running above 5 visits per day per FTE can absorb inflation that sub-3-visit operators cannot.
Non-medical home care
Personal care, companion services, and ADL support. Paid through Medicaid waivers, LTC insurance, VA benefits, and private pay. This sub-segment carries the lowest direct supply exposure and the highest labor and fuel intensity.
−40 to −90 bps
Margin exposure
Devices & DME
Minimal direct exposure. PPE, gloves, and incidental supplies form less than 2% of cost structure in most operating models. However, 1-100% tariff increases on gloves and PPE still translate into real cost pressure for high-acuity personal care operations (dementia, IDD, complex ADL), where PPE utilization runs 3-5× baseline.
Pharmaceutical
Not directly exposed at the operator level, since caregivers do not administer or dispense. Indirect exposure exists via Medicaid rate-setting pressure. State programs facing drug cost inflation in dual-eligible populations will resist waiver rate increases, compressing pass-through for labor and fuel.
Energy & logistics
This is the dominant supply chain variable. Caregiver mileage, often unreimbursed or reimbursed below IRS standard, creates real retention risk in a labor market that already pays $14-17 per hour nationally. Operators subsidizing mileage above federal standards see turnover benefits that more than offset the direct cost. Private-pay-heavy operators can reprice hourly rates. Medicaid-waiver operators cannot. Payer mix becomes the single most important determinant of resilience.
Hospice
Per-diem payment under the Medicare Hospice Benefit covering routine home care (approximately $221 per day in 2025), continuous home care, general inpatient, and respite. Hospice bears pharmacy cost directly, making it the most pharma-exposed sub-segment.
−80 to −160 bps
Margin exposure
Devices & DME
Hospice provides DME under the hospice benefit, including hospital beds, oxygen, commodes, and mobility aids. A 10-25% landed cost increase on imported DME compresses per-diem margin 30-50 bps for a typical hospice with 100-200 ADC (average daily census). Rental-versus-purchase decisions become a more material lever than in historically inflationary periods.
Pharmaceutical
This is the highest concentrated pharmaceutical exposure in home-based care. Opioid therapy (morphine, hydromorphone, fentanyl, methadone), benzodiazepines, and anti-emetics sit in generic markets where API supply concentrates in China and India. The 2025 morphine shortage forced substitution to higher-cost alternatives and more complex compounding. Pharmacy is typically the second-largest P&L line in hospice. A 15% rise in pharmacy cost per patient per day compresses margin 80-140 bps on per-diem rates that CMS holds essentially fixed.
Energy & logistics
Mileage exposure resembles skilled home health, with a wider geographic footprint in many rural markets. Pharmacy delivery is a specific exposure. Weekend and after-hours delivery surcharges from hospice pharmacy partners rose 12-20% in 2025 as fuel and labor costs compounded.
Home infusion and DME
Medicare Part B DME pumps, Part B and D infusion drugs, and HIT professional services. The most structurally exposed sub-segment on a gross basis, and the sub-segment with the clearest value creation pathway through sourcing and biosimilar strategy.
−150 to −280 bps
Gross margin exposure
Devices & DME
Infusion pumps, IV sets, tubing, catheters, and access supplies carry a materially higher share of Chinese manufacturing than many operators appreciate. The enteral syringe exemption from the 100% Section 301 rate expires January 1, 2026. Competitive bidding updates in CY2026 compound pricing pressure. Pump service contracts and depreciation schedules need reassessment against replacement cost inflation of 20-40%.
Pharmaceutical
Specialty infusibles (immunoglobulins, biologics, antibiotics, TPN components) sit at the API-concentration heart of BIOSECURE Act exposure. However, 2026 brings a structural offset. IRA negotiated prices take effect for the first wave (Stelara −66%, Enbrel −67%), the Part D out-of-pocket cap drops to $2,100, and nine interchangeable Stelara biosimilars now compete at 5-90% discounts to reference product. Operators positioned to convert quickly to negotiated and biosimilar products can expand margin while tariff-exposed peers lose it.
Energy & logistics
Cold-chain and time-sensitive specialty drug logistics compound fuel exposure. Per-diem HIT service rates are geographically adjusted but do not float with fuel costs. Regional pharmacy network density and white-bag and brown-bag logistics economics become deal-impact variables.

Sub-segment comparison

Relative exposure across the four home-based care sub-segments.

The three vectors do not hit every home-based care model equally. The chart below shows relative exposure, indexed to the most exposed sub-segment per vector. We use it to prioritize diligence focus areas and portfolio-company action plans.

Exhibit 3
Relative exposure index, 0-100 (higher reads as more exposed)
Directional view, not operator-specific.
Medical devices and DME
Home infusion & DME
95
Skilled home health
60
Hospice
50
Non-medical home care
15
Pharmaceutical supply
Home infusion & DME
100
Hospice
80
Skilled home health
25
Non-medical home care
5
Energy and logistics
Non-medical home care
85
Skilled home health
75
Hospice
65
Home infusion & DME
55
Source: Telesto analysis · Index reflects combined gross exposure (cost share, policy sensitivity, pass-through constraint). Does not account for offsetting factors like biosimilar adoption or route density improvements, which shift net exposure materially.

Value creation framework

Three horizons: now, next, and structural.

The structural argument is simple. Fixed reimbursement plus variable cost inflation creates a margin gap that consolidates toward operators who industrialize their response. Sponsors who move in the 0-90 day window set up the 12-36 month advantage.

Now · 0-90 days
Diagnose exposure, stop the bleed
01 Tariff exposure mapping

For every portfolio asset, run HTS-code-level exposure analysis on the top 20 SKUs. Identify where Chinese-sourced inputs sit two or three levels deep in the supplier tree. Most operators know their direct exposure and miss the indirect.

With operator
02 Pharmacy spend diagnostic

For hospice and home infusion assets, map cost per patient per day by drug class, concentration of API exposure, and biosimilar conversion readiness. Flag every drug where the API source is China or China-via-India.

Operator
03 PDGM case-mix re-weighting impact model

Run CY2024-based recalibrated weights against current patient mix for every skilled home health asset. The 11 payment groups with more than 5% weight change will move episode economics meaningfully.

Operator
04 Contract re-read

Re-check every supplier and pharmacy contract for pass-through clauses, price-adjustment triggers, and force majeure language. Most were written pre-tariff escalation.

Operator
Next · 3-12 months
Restructure sourcing, build the edge
05 Dual-source non-Chinese alternatives on critical SKUs

Vietnam, Malaysia, Mexico (USMCA-compliant), and US-domestic for the highest-volume, highest-tariff items. Accept a 5-15% unit cost premium for supply security where tariff-stacked cost runs 40% or more.

Operator
06 Biosimilar and IRA-negotiated price conversion

For home infusion, this is the largest margin lever in the sub-segment. Build a conversion playbook: payer-by-payer coverage, formulary positioning, clinical pathways, and patient steering. Stelara at a 66% negotiated discount combined with biosimilar competition is a margin expansion opportunity for ready operators.

Operator
07 Route density and visit economics

For skilled home health and personal care, use EVV data and routing optimization to lift visits per FTE by 10-15% without quality impact. Direct offset to mileage and fuel inflation, and a defense of LUPA threshold compliance under recalibrated thresholds.

Operator
08 Selective GPO leverage

Mid-market home-based care historically under-uses GPO leverage compared to acute care. Sponsors with multiple home-based care assets should run sourcing as a portfolio-level capability, not an asset-level one.

Structural · 12-36 months
Build moats competitors cannot match
09 Vertical integration of pharmacy

Particularly for hospice and home infusion platforms at scale. In-house or JV pharmacy captures 200-400 bps of margin currently paid to third-party hospice pharmacy and HIT pharmacy partners, and provides direct sourcing control.

10 Payer contracting with supply chain risk-sharing

Medicare Advantage and commercial payer contracts can include supply cost indexing or pass-through clauses. Early movers establish precedent. Laggards inherit the fixed terms set by competitors.

Operator
11 Tariff-resilient M&A thesis

Diligence should now score targets on supplier geographic diversification, captive versus outsourced pharmacy, payer mix flexibility, and technology-enabled sourcing. We expect a 1-2× EBITDA multiple gap to emerge between tariff-resilient and tariff-exposed operators over the next 24 months.

12 Exit positioning

Buyers will discount assets with unremediated tariff and API exposure. Operators who can show clean sourcing, biosimilar conversion, and multi-source resilience will earn a defensibility premium in a market that is re-pricing reimbursement risk.

Boardroom diligence

Five questions for the next investment committee or portfolio review.

Use these to frame your next IC paper or quarterly portco review.
01
For each home-based care asset, what percentage of top-20 SKU sourcing traces to China, directly and indirectly through Indian CDMO and generic suppliers, and what is the dollar impact of a full tariff pass-through scenario?
02
How much of the CY2026 net aggregate payment reduction of 1.3% for skilled home health is already reflected in portfolio forecasts, versus being absorbed as a downside surprise against the original deal thesis?
03
In hospice and home infusion assets, who owns pharmacy economics, the operator or a third-party partner, and is the current split still the right structure given 2026 dynamics?
04
Which biosimilar and IRA-negotiated-price conversion opportunities are actually live in our infusion platforms, and is the conversion playbook running at the pace needed to capture the 2026 window?
05
What does the buyer universe discount look like in 2027-2028 for home-based care platforms that have not remediated tariff and API exposure, and what is the cost of acting now versus the cost of explaining it later in a sale process?
The Telesto view

Supply chain disruption is not a risk to hedge. It is a value creation event to run at.

Every period of input-cost dislocation in healthcare services has produced a small cohort of operators who widened the gap against their peer set. In 2026, that gap will be built by sponsors and operators who treat tariffs, API concentration, and fuel costs not as a compliance problem but as a sourcing, contracting, and vertical integration opportunity. The squeeze is real. The value creation opportunity is larger.

Telesto partners with mid-market sponsors and home-based care leadership on the full arc of supply-chain-resilient value creation.

Our healthcare practice runs HALO pre-LOI brand DD and GEAR geopolitical earnings-at-risk diagnostics together for home health, hospice, and home infusion platforms. Fixed scope, fixed price, senior-led, in 5 business days.

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Sources & references

CMS CY2026 Home Health Prospective Payment System Final Rule (CMS-1828-F), December 2025 · CMS CY2026 Home Infusion Therapy national and locality-adjusted rates · USTR Section 301 tariff modifications on imports from China, September 2024 and subsequent · White & Case LLP analysis of Section 301 medical equipment tariff rates · Congressional Research Service, 2025 Presidential Tariff Actions: Timeline and Status · AHA Fact Sheet on impact of tariffs on healthcare equipment · National Defense Authorization Act for FY2026 (BIOSECURE 2.0 language) · Fierce Pharma and Pharmaceutical Technology analyses of BIOSECURE Act evolution · ASPE Report on Drug Shortages and Consumer Costs · Coalition for a Prosperous America analysis of Indian API sourcing from China · American Society of Health-System Pharmacists drug shortage tracking · Home Health Care News · National Home Infusion Association · JAMA Health Forum research on PE acquisitions in home health · FOCUS Investment Banking Healthcare EBITDA Multiples 2026 Dashboard · MedPAC March 2025 Report to Congress, Chapter 7: Home Health Care Services · IRS 2025 and 2026 standard mileage rates · Telesto analysis where noted.