This study explores whether for‐profit home health agencies responded differently from non‐profit agencies to financial incentives embedded in the Medicare prospective payment system. Agencies were able to receive higher reimbursement per patient under the prospective payment system if they adjusted the number of therapy visits or the type of visits for a two‐month‐long episode. Agencies could also increase reimbursement by treating a patient for multiple episodes of care, because prospective payments were made on a per‐episode basis. Using the Medicare Claims and Provider of Services Files from 2001 to 2009, we examine differences between for‐profit and non‐profit agencies in these practice patterns during the first nine years of the prospective payment system. We find that for‐profit agencies were more likely to adopt most of these practice patterns than were non‐profit agencies. This finding suggests that for‐profit agencies were more responsive to financial incentives, and therefore disproportionately contributed to the increase in Medicare home health spending under the prospective payment system. Policymakers could consider revising the current prospective payment system that gives agencies incentives to distort practice patterns regardless of a patient's health care needs.