What is PDGM? The Patient-Driven Groupings Model (PDGM) is the Medicare payment system for home health care that started on January 1, 2020. It replaced the older 60-day episode model and shifts the focus from how many visits are provided to who the patient is and what care they need. Under PDGM, Medicare pays home health agencies for each 30-day period of care (two periods per 60-day episode) rather than a single lump sum for 60 days. The payment amount is determined by the patient’s clinical profile (diagnoses, functional status, etc.) instead of being based on how many therapy or nursing visits are delivered. In short, PDGM is designed to better align Medicare payments with patient needs and complexity, and to remove incentives for unnecessary high visit volumes that existed in the old model.
PDGM Basics: Why It Was Introduced and How It Works
PDGM stands for Patient-Driven Groupings Model. It is a payment system that Medicare uses to reimburse home health agencies for services provided to eligible patients at home. It replaced the previous Home Health Prospective Payment System (HH PPS) for Medicare home health on January 1, 2020, as part of a broader shift towards value-based care. The key aim was to focus payment more on patient needs and clinical complexity rather than the sheer volume of visits.
Under the older 60-day episodic model, agencies were paid a single amount for a 60-day episode of care, and the payment could increase if the patient received a lot of therapy visits (so-called “therapy thresholds”). PDGM eliminated those visit-count triggers, removing the incentive to provide extra visits that might not be necessary. Instead, PDGM ties payment to patient characteristics – things like the patient’s health condition, functional ability, and recent hospitalizations.
Shorter payment periods: One of the biggest changes with PDGM is that Medicare now pays per 30-day period of care instead of per 60-day episode. This means that if a patient is on service for a full 60 days (a common certification period in home health), the agency will typically submit two claims: one for days 1–30 (the first period) and another for days 31–60 (the second period). The patient’s plan of care and the recertification cycle remain 60 days – clinicians still plan and review care in 60-day increments – but billing happens twice as often as before. In practice, this required agencies to adjust their operations and cash flow, since they now generate claims (and get paid) more frequently, but also need to manage double the number of claims for each patient.
Case-mix adjusted payments: So how does Medicare decide the payment for each 30-day period? Under PDGM, they use a case-mix grouping system. Each 30-day period is classified into one of 432 possible case-mix groups (also known as Home Health Resource Groups, or HHRGs). Each group has a relative weight that represents the expected costliness of caring for a patient with that profile. That weight is multiplied by a national base rate to determine the actual payment amount (which is then adjusted for local wage differences and any special outlier situations). The five factors that define each group are described next.
PDGM’s Five Grouping Factors (The 5 Pillars of PDGM Classification)
1. Admission Source: How did the patient enter home health? PDGM looks at whether the patient is coming from the community (e.g. a doctor’s office or self-referral, no inpatient stay recently) or from an institutional setting (meaning they had a hospital or skilled nursing facility (SNF) stay within 14 days before starting home health). This factor is typically determined at intake by reviewing the referral info: an inpatient discharge summary or referral note indicates an Institutional admission, whereas a referral from a physician’s office or clinic without a recent hospital stay is Community. Institutional admissions usually have higher case-mix weights (higher payment), reflecting that patients recently hospitalized tend to need more intensive care at home.
2. Timing: Is this the first or subsequent 30-day period in the current home health episode? The first 30-day period in a new home health episode is classified as “Early,” and all subsequent contiguous 30-day periods are “Late.” If a patient is on service for more than 30 days, their second 30-day period (days 31–60) will be Late, as will any further periods if the episode extends beyond 60 days (with recertification). If a patient is discharged and then readmitted to home health after a significant break (60+ days), a new episode starts and that first period is considered Early again. In general, early periods have slightly higher reimbursement than late periods, under the assumption that more resources and front-loaded services are typically needed at the start of care. The Timing category is tracked automatically by the agency’s system as it manages the patient’s episode lifecycle (Start of Care, Recertification, etc.).
3. Clinical Grouping: What is the primary reason the patient needs home health care? PDGM introduced 12 Clinical Groups which are broad categories based on the patient’s principal diagnosis. Each group corresponds to a type of care or condition.
For example, some of the clinical groups are:
Musculoskeletal Rehabilitation (e.g. primarily orthopedic conditions, joint replacements)
Neuro/Stroke Rehabilitation
Wound Care
Behavioral Health Care
Complex Nursing Interventions (complex medical, such as IV infusions or ventilator care)
Medication Management, Teaching & Assessment (MMTA) – which is subdivided into several areas like MMTA – Cardiac/Circulatory, MMTA – Respiratory, MMTA – Endocrine, etc., covering common chronic condition management.
During intake and the initial coding process, the home health coder or nurse identifies the primary diagnosis for home health – essentially, the main condition requiring skilled care. Medicare’s PDGM “grouper” software will assign that diagnosis to one of the 12 groups. If the primary diagnosis is not in a recognized group (ex: a very vague or “symptom” code not accepted for grouping), the claim will be flagged and payment cannot be processed until a valid diagnosis is used. This makes accurate coding and thorough documentation critical in PDGM – the primary diagnosis must be specific and allowable in order to get paid, a concept often referred to as avoiding “questionable encounter” diagnosis codes.
4. Functional Impairment Level: How independent or limited is the patient in daily activities? PDGM uses certain answers from the OASIS (Outcome and Assessment Information Set) – the standardized patient assessment – to determine a Functional Impairment Level, categorized as Low, Medium, or High. These OASIS items assess abilities in areas like bathing, dressing, ambulation (walking), toileting, grooming, etc. The home health nurse or therapist completing the Start of Care OASIS enters these assessments, and the PDGM formula translates them into a score. Patients with greater functional limitations (e.g. needing assistance with multiple ADLs) fall into Medium or High impairment categories, which increase the case-mix weight (thus higher reimbursement) because they tend to need more resources. Conversely, a patient who is largely independent in ADLs might be Low impairment, indicating lower expected costs. It’s crucial that clinicians accurately score the OASIS functional items – overstating or understating the patient’s abilities can lead to an inappropriate Functional level and potential payment or compliance issues.
5. Comorbidity Adjustment: What other health conditions complicate the patient’s care? PDGM provides an additional adjustment for comorbidities, which are secondary diagnoses (beyond the primary one) that the patient has and that could affect their care needs. Each 30-day period can get a comorbidity adjustment in one of three categories: None, Low, or High. Medicare has a defined list of diagnosis codes and combinations that qualify for Low or High adjustments.
A Low comorbidity adjustment is typically applied when the patient has one moderate secondary condition (for example, osteoporosis, or a stable heart condition that adds some complexity).
A High comorbidity adjustment is given when the patient has a particularly serious condition or multiple significant coexisting conditions that together create a high level of complexity (e.g., a diabetic patient with congestive heart failure and renal failure might meet criteria for High). If none of the secondary diagnoses meet the criteria, No comorbidity adjustment is applied. Proper diagnosis coding of all relevant conditions is important so that agencies don’t miss out on legitimate reimbursement for complex patients, and also to ensure the claim is correct.
Summary of PDGM’s Five Factors: These five dimensions together determine the overall case-mix group for each 30-day period. A quick summary is provided in the table below:
PDGM Grouping Factor | Categories (Subgroups) | Determined by… (Source of Data) |
Admission Source | Community vs. Institutional | Intake/Referral info (was there a hospital/SNF stay in last 14 days?) |
Timing | Early vs. Late 30-day period | Episode timeline (first 30 days = Early; subsequent contiguous 30-day periods = Late) |
Clinical Grouping | 12 groups (e.g. MS Rehab, Neuro, Wound, MMTA, etc.) | Primary diagnosis coding (established from patient’s chart/referral; must map to a PDGM group) |
Functional Impairment | Low, Medium, or High | OASIS assessment (scores on specific functional ability questions at SOC) |
Comorbidity Adjustment | None, Low, or High | Secondary diagnoses (co-morbid condition codes identified by clinician/coder) |
These factors are automatically combined by a PDGM “grouper” software (used by the agency’s EMR or billing system) to output a specific payment group code for the period. In Medicare claims, this is represented as a 5-character code called a HIPPS code (Health Insurance Prospective Payment System code). For example, a patient whose 30-day period is Institutional admission, Early timing, Wound Care group, High functional impairment, Low comorbidity might be assigned a code like 2AEH1 (just as an illustration). Each unique HIPPS code corresponds to one of the 432 case-mix groups, and behind the scenes, Medicare assigns it a weight (e.g. 1.2000). Payment for that period = Medicare’s base rate × the weight, plus any applicable adjustments (like a geographic wage index factor to account for cost of living differences, or outlier payments for extremely costly cases).
LUPA vs. full payment: A crucial aspect of PDGM’s payment methodology is the Low-Utilization Payment Adjustment (LUPA). If the number of visits in a 30-day period falls below a certain threshold (between 2 and 6 visits, depending on the case-mix group), Medicare will pay per visit (LUPA) instead of the full lump sum. For agencies, a LUPA can mean much lower reimbursement — often around a few hundred dollars total, versus a few thousand for a full episode payment. Thus, agencies monitor visit counts carefully per period so that a patient who needs and is scheduled for, say, 5 visits doesn’t inadvertently end up with only 4 visits (triggering a LUPA) due to a missed visit or early discharge. Of course, patient care comes first – if a patient legitimately doesn’t need more visits, the agency can’t and shouldn’t add visits just to avoid a LUPA. But operationally, many have put in place LUPA tracking reports or mid-period utilization reviews to foresee potential LUPAs and adjust if appropriate. Under PDGM, LUPA thresholds vary, whereas under the prior model there was a universal threshold of 5 visits per 60 days – another sign of PDGM’s more nuanced approach.
How PDGM Affects the Billing Workflow
PDGM changes not only how payment is calculated, but also how agencies must handle billing steps and compliance. The introduction of 30-day billing periods and new requirements like the NOA and OASIS-to-claim matching have made the end-to-end billing workflow more complex. Here’s a simplified overview of the typical PDGM billing cycle for a Medicare home health patient:
If the patient continues with home health beyond 60 days, a new 60-day episode begins with the recertification. That will involve another pair of 30-day billing periods (all classified as “Late” timing because only the very first 30 days of the very first episode are considered Early), each with its own claim.
This workflow highlights how PDGM has interlocking steps involving multiple roles:
Intake/Referral feeds data for admission source and ensures physician orders are in place.
Clinical staff (nurses/therapists) perform assessments (OASIS) and deliver care.
Coding specialists assign diagnoses that drive clinical grouping and comorbidity adjustments.
Quality Assurance (QA) reviews OASIS and documentation for completeness and accuracy, verifying alignment between clinical documentation and what will be billed.
Billing personnel manage the NOA and final claims, double-checking that all required data (OASIS submission, codes, dates) are correct.
Tighter team coordination is essential under PDGM. For example, the biller cannot send the claim unless the clinician has finished and submitted the OASIS and the coder has ensured valid diagnoses – a true cross-departmental effort. Our internal teams emphasize that PDGM success requires “aligning OASIS → Plan of Care (CMS-485) → and billing” as a continuous data flow. Miscommunication or delays at any stage (intake, assessment, coding, documentation, or billing) can directly affect payment.
Key Compliance Considerations under PDGM
PDGM introduced some must-know compliance rules that agencies vigilantly monitor to avoid payment problems:
Timely NOA submission: As noted, the NOA is required within 5 days of SOC – missing this triggers an automatic payment reduction for each day late. Agencies often set internal deadlines (like 24-48 hours post-SOC) and use software reminders to ensure NOAs are filed on time.
OASIS and Claim Alignment: Medicare now enforces that certain OASIS data elements match the claim. The biggest one is the OASIS completion date (M0090), which must appear on the claim (Occurrence Code 50) and match exactly. Also, the OASIS must be submitted and accepted in the CMS system before the claim. If not, the claim will be rejected or returned to provider (RTP) for correction.
Diagnosis Requirements: The primary diagnosis must be valid for PDGM grouping. If a “questionable” code (one that doesn’t fit a PDGM clinical group) is used, the claim will be ineligible for full payment until a valid code is provided. Agencies often employ certified coders or use coding software edits to catch these issues upfront.
Visit Threshold Monitoring (LUPA avoidance): For each 30-day period, Medicare defines a LUPA threshold (ranging 2–6 visits) based on case-mix group. If actual visits fall short, the agency is paid per visit, potentially significantly less (for example, 4 nursing visits * $150 each instead of a $2,500 case rate). Agencies therefore track visit counts and try to schedule appropriately to meet patients’ needs without inadvertently causing a LUPA. If a LUPA is unavoidable (say a patient improved and was discharged early), that’s fine – but it should be supported by documentation.
Physician Orders and Plan of Care: The PDGM payment is contingent on the patient being under a physician’s care and having a signed plan of care for each 60-day episode (Medicare certification). This didn’t change with PDGM, but the emphasis on timely processes means agencies must obtain signed orders (plan of care/CMS-485) promptly after SOC. If orders are delayed, it can hold up billing. Medicare requires a physician to certify (sign) the plan of care every 60 days and when major changes occur (like adding new services or medications, which must be ordered).
Other Claim Data & Coding Consistency: Under PDGM, agencies must carefully manage all data going onto claims. For example, the Medicare Beneficiary ID (MBI) and the CMS Certification Number (CCN) of the home health agency must be correct on submissions or claims get rejected. Internal audits have shown that data mismatches (like a typo in the ID or a date) are common causes of claim delays, so good pre-billing quality control is important.
Below is a quick reference highlighting common PDGM pitfalls and why they matter:
Late NOA: Penalty – Payment is reduced by 1/30th for each late day (for that first 30-day period). For example, an NOA submitted 3 days late means Medicare will dock roughly 3/30 (10%) of the Period 1 payment.
Rejected OASIS/Claim Mismatch: No pay until fixed – If the OASIS isn’t accepted or the key fields (like M0090 date) don’t match the claim, the claim will not be paid. It gets sent back (RTP), causing rework and delayed payment
Questionable Diagnosis Code: Payment blocked – If the primary diagnosis doesn’t map to one of PDGM’s 12 clinical groups, the claim will be in a suspense status (Return to Provider) and must be corrected with an acceptable code before Medicare will process it.
LUPA (Low-Utilization Payment Adjustment): Drastically lower reimbursement – If the total visits in a period are below the threshold (2–6 visits depending on the case mix group), Medicare pays per visit instead of the full case rate. This can cut payment by 50% or more, affecting agency revenue. Best practice is to plan visits carefully and document the need (or the reason for fewer visits if clinically appropriate).
General documentation & data accuracy: Audit risk and revenue impact – PDGM has increased scrutiny on whether documentation supports the high-level data being billed (diagnoses, functional limitations, services provided). Incomplete or inconsistent documentation can lead not only to payment denials but also potential compliance issues if audited by Medicare reviewers. Agencies emphasize comprehensive, timely documentation (e.g., describing homebound status, skilled need, progress towards goals) to justify the services in each period.
Final Thoughts
In summary, PDGM is a complex but important framework that has transformed how Medicare pays for home health care. It aims to ensure payment is more aligned with each patient’s unique needs (through the five-factor grouping model) and to encourage providers to be efficient and quality-focused (no extra payments for high visit counts). For our internal staff (product, support, sales, training), understanding PDGM is crucial because it drives many system requirements (like OASIS data handling, billing modules) and client workflows in Medicare-certified home health agencies.
Key takeaways:
Payment periods are 30 days each, with two per standard episode.
Five patient-centered categories determine how each period is grouped for payment.
Accurate, timely OASIS assessments and coding are central to PDGM – they feed the payment model directly.
HIPPS codes on claims encapsulate the PDGM group information, and they must match up with the OASIS and plan of care data.
New processes like the NOA and claim-OASIS matching mean agencies must coordinate across departments and use robust software to avoid mistakes.
Training and SOPs have become essential for agencies under PDGM, covering intake, clinical, QA, coding, and billing tasks, to achieve compliance and optimal reimbursement.