PDGM in one paragraph
The Patient-Driven Groupings Model (PDGM) is the system Medicare uses to pay home health agencies. It took effect on January 1, 2020, as required by the Bipartisan Budget Act of 2018. Under PDGM, Medicare pays a home health agency a set amount for each 30-day period of care. That amount is adjusted based on the patient's characteristics, such as why they need care, how they were referred, how functionally impaired they are and what other conditions they have, rather than on how many therapy visits the agency provides.
In short, PDGM pays for who the patient is, not how much therapy they receive.
Why CMS created PDGM
Before 2020, Medicare paid home health under a 60-day episode model with 153 case-mix groups. Payment rose sharply when therapy visits crossed certain thresholds, such as 6, 14 and 20 visits. Critics, including the Medicare Payment Advisory Commission, argued this rewarded agencies for providing more therapy rather than better care, and underpaid agencies serving patients with complex nursing needs.
PDGM removed therapy thresholds entirely, shortened the unit of payment to 30 days and created groups based on clinical characteristics. The goal was to pay more accurately for patients with high nursing needs and to make payment neutral to therapy volume.
How PDGM works: the five factors
Every 30-day period is assigned to one of 432 case-mix groups using five factors. The combinations multiply out as 2 admission sources × 2 timing categories × 12 clinical groups × 3 functional levels × 3 comorbidity levels.
Factor | Options | Where the data comes from |
|---|---|---|
Admission source | Community or institutional | Medicare claims history |
Timing | Early (first 30-day period) or late (every period after) | Medicare claims history |
Clinical grouping | 12 groups | Primary ICD-10-CM diagnosis on the claim |
Functional impairment level | Low, medium or high | OASIS functional items |
Comorbidity adjustment | None, low or high | Secondary diagnoses on the claim |
Admission source. A period is institutional if the patient had an acute or post-acute inpatient stay in the 14 days before the period. For late periods, only an acute hospital stay counts. Everything else is community. Institutional admissions generally carry higher weights because those patients tend to need more care.
Timing. The first 30-day period in a sequence is early. Every later period is late. Early periods are weighted higher because care is usually most intense right after admission. A new sequence starts if there is a gap of more than 60 days between periods.
Clinical grouping. The primary diagnosis places the period into one of 12 groups: MMTA-Other, MMTA-Surgical Aftercare, MMTA-Cardiac and Circulatory, MMTA-Endocrine, MMTA-Gastrointestinal and Genitourinary, MMTA-Infectious Disease, Neoplasms and Blood-Forming Diseases, MMTA-Respiratory, Behavioral Health, Complex Nursing Interventions, Musculoskeletal Rehabilitation, Neuro Rehabilitation, and Wounds. MMTA stands for Medication Management, Teaching and Assessment. Diagnoses that do not map to a group cannot be the primary diagnosis.
Functional impairment level. OASIS responses on grooming, upper and lower body dressing, bathing, toilet transferring, transferring, ambulation and risk of hospitalization produce a functional score. CMS sets thresholds within each clinical group to sort periods into low, medium or high impairment.
Comorbidity adjustment. Secondary diagnoses can add a low adjustment, when one diagnosis falls into a qualifying subgroup, or a high adjustment, when two diagnoses fall into a qualifying interaction. For CY 2026, CMS uses 20 low comorbidity subgroups and 98 high comorbidity interaction subgroups.
How PDGM groups appear on a claim
Each group is reported as a five-character HIPPS code on revenue code 0023 of the final claim. Position 1 shows admission source and timing, position 2 the clinical group, position 3 the functional level, position 4 the comorbidity adjustment and position 5 is a placeholder. Medicare checks timing and admission source against its own records and can recode position 1 if the agency's information differs.
How payment is calculated
The calculation starts with the national standardized 30-day period rate. For CY 2026, that rate is $2,038.22 for agencies that report required quality data. The rate is then:
Multiplied by the case-mix weight for the period's PDGM group.
Adjusted for local wages, with 74.9% of the payment treated as labor-related and multiplied by the area wage index.
Reduced if the Notice of Admission was late.
Converted to per-visit payment if the period falls below its LUPA threshold.
Increased by an outlier payment if costs are unusually high.
Adjusted up or down under the Home Health Value-Based Purchasing Model, based on quality performance.
LUPAs and outliers under PDGM
Low-utilization payment adjustment (LUPA). Each of the 432 groups has a LUPA threshold, set at the 10th percentile of visits for that group or two visits, whichever is higher. Thresholds range from two to six visits. If a period has fewer visits than its threshold, Medicare pays per visit instead of the full period amount. For 2026, national per-visit rates include $176.96 for skilled nursing, $193.42 for physical therapy and $80.12 for aide visits, with an add-on for the first skilled visit in an initial or only LUPA period.
Outliers. When a period's estimated cost exceeds the payment plus a fixed-dollar loss amount, Medicare pays 80% of the excess. The CY 2026 fixed-dollar loss ratio is 0.37. Outlier payments are capped at 10% of an agency's total PPS payments.
Why PDGM rates keep being adjusted
The law required PDGM to be budget neutral, meaning total Medicare spending should match what it would have been under the old system. To estimate the new rate, CMS made assumptions about how agencies would change behavior, such as coding diagnoses more completely or providing enough visits to avoid LUPAs.
CMS later found that actual behavior raised spending more than expected. Under the Consolidated Appropriations Act of 2023, CMS must compare assumed and actual behavior and make permanent and temporary adjustments. For CY 2026, CMS applied a permanent −1.023% adjustment and a temporary −3% adjustment. CMS estimated overpayments of about $5.3 billion for 2020 through 2024 and plans to recoup them gradually through temporary adjustments.
For CY 2027, CMS proposed no new permanent adjustment but another temporary −3% reduction, with an overall proposed increase of 2.4% and a proposed 30-day rate of $2,092.27. The final CY 2027 rule had not been published at the time of writing.
What changed operationally under PDGM
Two claims per certification period. The plan of care is still certified every 60 days, but billing happens every 30 days.
RAPs were phased out. Since January 1, 2022, agencies submit one Notice of Admission (NOA) per admission within five calendar days of start of care instead of RAPs.
Coding matters more. Because the primary diagnosis sets the clinical group, coding accuracy directly affects payment.
OASIS accuracy matters more. Functional items drive the impairment level.
Visit planning matters. Agencies track LUPA thresholds to avoid underpayment.
PDGM and quality: HHVBP
PDGM sets the base payment. The expanded Home Health Value-Based Purchasing (HHVBP) Model, which became nationwide in 2023, adjusts payment based on quality measures from OASIS, claims and patient surveys. Agencies that perform well can earn upward adjustments, while low performers face reductions.
How to succeed under PDGM
Capture specific, groupable primary diagnoses at intake.
Train clinicians to complete OASIS functional items accurately.
Code all supported secondary diagnoses to capture legitimate comorbidity adjustments.
Submit NOAs within five days, ideally on the day of start of care.
Monitor visit counts against LUPA thresholds during each period.
Reconcile Medicare's paid HIPPS code with the billed code and investigate differences.
These steps are hard to manage while also running clinical operations. That is why many agencies partner with a specialized home health billing service that understands PDGM end to end. Agencies comparing home health billing services in USA should ask how each vendor validates diagnoses, tracks LUPA risk and reconciles HIPPS recoding.
Local market conditions shape PDGM results too. Coachella Valley agencies using home health billing services in Palm Springs see strong seasonal swings in admissions. Agencies working with home health billing companies in Houston must also manage Review Choice Demonstration requirements in Texas. And New York agencies using home health billing services in NYC often care for complex patients where comorbidity coding is critical.
TruCare works as a PDGM-focused home health billing company, reviewing coding, OASIS consistency and NOA timeliness before claims go out.
FAQs
What does PDGM stand for? Patient-Driven Groupings Model, the Medicare home health payment model in effect since January 1, 2020.
How many PDGM groups are there? 432 case-mix groups.
How long is a PDGM payment period? 30 days. Certification periods remain 60 days.
Does therapy affect PDGM payment? Not directly. PDGM removed therapy visit thresholds. Therapy visits still count toward LUPA thresholds.
What is the 2026 PDGM base rate? $2,038.22 per 30-day period before case-mix and wage adjustments.
Sources: CMS MLN Matters MM14304; IHA CY 2026 HH PPS final rule summary; CMS CY 2027 proposed rule fact sheet; CGS: PDGM overview; CGS: Submitting a final claim under PDGM.
