An important goal of home health care is to assist patients to remain in community living arrangements. Yet home care often fails to prevent hospitalizations and to facilitate discharges to community living, thus putting patients at risk of additional health challenges and increasing care costs. To determine the relationship between home health agency work environments and agency-level rates of acute hospitalization and discharges to community living. Analysis of linked Center for Medicare and Medicaid Services Home Health Compare data and nurse survey data from 118 home health agencies. Robust regression models were used to estimate the effect of work environment ratings on between-agency variation in rates of acute hospitalization and community discharge. Home health agencies with good work environments had lower rates of acute hospitalizations and higher rates of patient discharges to community living arrangements compared with home health agencies with poor work environments. Improved work environments in home health agencies hold promise for optimizing patient outcomes and reducing use of expensive hospital and institutional care.