Medicare pays home health agencies a flat rate for each 30-day period of care, adjusted based on how sick and functionally limited the patient is. This system, called the Patient-Driven Groupings Model (PDGM), replaced an older 60-day payment model in January 2020. The amount an agency receives for any given patient depends on five clinical and administrative factors, and the agency must follow strict filing deadlines to collect the full payment.
What Patients Must Qualify For First
Before any payment flows, the patient has to meet Medicare’s eligibility rules. The two big requirements are that the patient needs part-time or “intermittent” skilled care (nursing, physical therapy, speech therapy, or occupational therapy) and that the patient is considered homebound. Homebound doesn’t mean bedridden. It means leaving the home isn’t recommended because of the patient’s condition, or that getting out requires considerable effort, assistive devices, special transportation, or help from another person.
A healthcare provider, such as a doctor or nurse practitioner, must see the patient face-to-face and certify the need for home health services before the agency can bill Medicare. The agency itself must be Medicare-certified. If a patient needs full-time skilled care rather than part-time or intermittent visits, they don’t qualify for the home health benefit at all.
How Medicare Calculates the Payment
Under the PDGM, Medicare assigns each 30-day period of care to one of 432 possible payment groups. The payment group determines how much the agency gets paid, and it’s built from five variables:
- Admission source: Whether the patient came from the community (living at home) or from an institutional setting like a hospital or skilled nursing facility.
- Timing: Whether this is an “early” 30-day period (the first or second in a sequence of care) or a “late” period (third or beyond). Early periods generally pay more because patients tend to need more intensive services at the start.
- Clinical grouping: The patient’s primary reason for needing care, sorted into one of 12 categories. These range from musculoskeletal rehabilitation and stroke recovery to wound care, cardiac management, respiratory conditions, behavioral health, and complex nursing interventions.
- Functional impairment level: How much difficulty the patient has with everyday activities, rated as low, medium, or high.
- Comorbidity adjustment: Whether secondary diagnoses make the patient more expensive to treat, categorized as none, low, or high.
Multiply the options together (2 × 2 × 12 × 3 × 3) and you get those 432 groups, each with its own payment rate. A patient recovering from hip replacement surgery who came from a hospital, is in their first 30 days, has moderate functional limitations, and has diabetes as a comorbidity will land in a different, and likely higher-paying, group than a community-dwelling patient with a simple wound and no secondary diagnoses.
The Role of Patient Assessments
The data feeding into those five categories comes largely from a standardized assessment called OASIS (Outcome and Assessment Information Set). Clinicians complete this assessment at the start of care and at regular intervals. The OASIS responses are run through grouper software that generates a code, known as a HIPPS code, which appears on the claim form and tells Medicare exactly which payment group applies.
Medicare doesn’t just trust the code on the claim. Post-payment reviews compare the agency’s OASIS data against the patient’s actual condition. A reviewer can accept the payment group the agency billed or adjust it. If the reviewer determines the patient was less complex than reported, the agency may have to return part of the payment. This audit process is one of the main compliance risks agencies face.
What the Agency Actually Receives
Medicare pays a national standardized 30-day rate that bundles all covered home health services together: skilled nursing, physical therapy, occupational therapy, speech-language pathology, medical social services, and home health aide visits. The agency gets one lump payment for the period, not separate payments for each visit or discipline. For calendar year 2025, the base rate received a net update of 2.7%, reflecting a 3.2% market basket increase minus a 0.5 percentage point productivity adjustment. Agencies that fail to submit required quality data see their update trimmed by an additional 2 percentage points, dropping it to just 0.7%.
This bundled structure means the agency absorbs the cost if a patient needs more visits than expected within a 30-day window. It also means the agency keeps the difference if fewer visits are needed. The financial incentive pushes agencies to manage care efficiently rather than simply adding visits.
Low-Utilization Adjustments
There’s an important exception to the flat 30-day payment. Each of the 432 case-mix groups has a minimum visit threshold, typically around two or three visits. If the agency provides fewer visits than that threshold during a 30-day period, it doesn’t receive the full case-mix adjusted payment. Instead, it receives a per-visit payment for each visit actually delivered. This is called a Low Utilization Payment Adjustment, or LUPA.
For example, if a patient’s group has a threshold of three visits but the agency only makes two visits during that 30-day window, the agency gets paid a standardized amount per visit rather than the full period rate. LUPAs typically pay significantly less than a full 30-day period, so agencies monitor visit counts carefully to avoid falling below the threshold unintentionally.
Outlier Payments for High-Cost Patients
On the other end of the spectrum, Medicare provides additional outlier payments when a patient’s care costs substantially exceed the standard payment for their group. To qualify, the estimated cost of the case must surpass a fixed-loss threshold set by CMS each year. When a case does qualify, Medicare pays 80% of the costs that exceed that threshold. These payments exist as a safety valve so agencies aren’t financially penalized for taking on genuinely complex, resource-intensive patients.
Quality Performance Bonuses and Penalties
Beyond the base payment, Medicare’s Home Health Value-Based Purchasing program adjusts what agencies receive based on quality scores. Agencies that perform well on measures like patient improvement, hospitalization rates, and patient satisfaction can earn a bonus on top of their standard payments. Agencies with poor scores see their payments reduced. The maximum adjustment has increased over time, starting at 3% in 2018 and reaching 7% by 2021. For agencies operating on thin margins, a 5% to 7% swing in either direction is substantial.
Filing Deadlines That Affect Payment
Agencies must submit a Notice of Admission (NOA) to their Medicare Administrative Contractor within five calendar days of the patient’s start-of-care date. The five-day clock starts the day after admission. Filing on time matters because late submissions trigger a payment penalty that reduces the amount paid on the initial claim. If the NOA is very late, the penalty can cascade into subsequent 30-day periods as well. For a period that qualifies as a LUPA, the consequences are even steeper: Medicare won’t pay for any visits that occurred before the NOA was submitted.
The NOA is considered timely based on when Medicare receives it, not when it finishes processing. So an agency that submits on day five but doesn’t get approval until day eight is still in the clear. This distinction matters for agencies managing high admission volumes where processing delays are common.
Medicare Part A vs. Part B Coverage
Home health services can be covered under either Medicare Part A or Part B, and the distinction is mostly invisible to the patient since there’s no copay or deductible for covered home health care under either part. The split primarily affects Medicare’s internal accounting. Part A typically covers home health care that follows a qualifying hospital or skilled nursing facility stay, while Part B covers home health care that doesn’t stem from an inpatient stay. From the agency’s perspective, the payment mechanics and rates are the same regardless of which part funds the benefit.