The Patient-Driven Groupings Model (PDGM) is the current Medicare reimbursement framework for certified home health agencies (HHAs) in the United States. Implemented in January 2020, PDGM replaced the prior Home Health Prospective Payment System (PPS). The central objective of PDGM is to shift the financial focus away from the volume of services delivered, such as the number of therapy visits, toward a system based on the patient’s clinical characteristics and documented care needs. This structure aims to improve payment accuracy by matching reimbursement more closely to the resources required for a specific patient population.
How PDGM Structures Home Health Episodes
The PDGM fundamentally restructured the unit of payment for home health services, moving from a 60-day episode of care to a series of 30-day periods. This change means that a patient’s care is analyzed and paid for in these shorter, independent intervals, although the overall certification and plan of care requirements still typically span 60 days. Payment is calculated for each 30-day period separately, which creates a continuous reassessment of the patient’s condition and needs.
For each 30-day period, the patient is assigned to a specific payment category known as a Case-Mix Group (CMG). There are 432 possible CMGs in total, reflecting the wide variation in patient complexity and resource utilization. The specific CMG assigned determines the base payment rate the home health agency will receive for that 30-day period. This granular approach necessitates precise documentation and coding to ensure the agency is appropriately compensated for the level of care provided.
The determination of which of the 432 CMGs a patient falls into is a function of four primary clinical and administrative variables. These four factors are multiplied together, along with a comorbidity adjustment, to arrive at the final grouping. This structure bases payment on documented patient data collected at the start of care and throughout the patient’s episode.
The Four Variables Determining Payment Groups
The first factor is the Admission Source, which categorizes the patient as either institutional or community. Institutional admission means the patient was discharged from an inpatient setting (hospital, skilled nursing facility, or rehabilitation facility) within 14 days before the start of care. Community admission applies to all other patients. Institutional admissions receive a higher payment because these patients typically have higher acuity and more immediate resource needs.
The second variable is the Timing of the 30-day period, split into “Early” or “Later” categories. The first 30-day period of care is always classified as Early. All subsequent 30-day periods are classified as Later, and the payment for these periods is lower to account for the expected stabilization of the patient’s condition after the initial acute phase.
The third factor is the Clinical Grouping, determined by the patient’s principal diagnosis using the ICD-10 code. PDGM organizes diagnoses into 12 distinct clinical categories, such as Musculoskeletal Rehabilitation, Neuro/Stroke Rehabilitation, Wounds, and various Medication Management, Teaching, and Assessment (MMTA) groups. The specific clinical grouping assigned indicates the primary reason for the patient’s need for home health services and drives the expected resource use.
The final variable is the Functional Impairment Level, determined by a subset of questions from the Outcome and Assessment Information Set (OASIS). Based on the patient’s ability to perform routine activities of daily living, the impairment is categorized as Low, Medium, or High. Patients with higher functional impairment levels require more assistance and resources, leading to a higher payment rate. In addition to these four factors, a comorbidity adjustment (None, Low, or High) is applied based on secondary diagnoses that increase resource use, refining the final payment group.
Operational Impact on Home Health Care Delivery
The implementation of PDGM required a significant shift in the operational practices of home health agencies, moving them toward a model that prioritizes value over service volume. The removal of therapy visit thresholds from the payment calculation meant that agencies could no longer rely on increasing the number of therapy visits to boost reimbursement. Instead, the focus is now on comprehensive, coordinated care planning tailored to the patient’s specific clinical and functional needs.
Accurate and timely documentation became significantly more important under the new model, particularly for the initial assessment. The data collected on the OASIS tool directly determines the Admission Source, Functional Impairment Level, and Clinical Grouping, which locks in the payment for the first 30-day period. Agencies must ensure the initial assessment is complete, accurate, and reflects the patient’s true acuity to receive appropriate payment.
The rigor of documentation extends to the use of ICD-10 coding, as the patient’s principal diagnosis must accurately map to one of the 12 clinical groups to ensure proper reimbursement. Inaccurate or non-specific primary diagnoses can result in a lower-paying grouping or even a rejection of the claim, forcing agencies to invest in specialized coding and clinical documentation improvement staff.
A further operational challenge involves managing the Low Utilization Payment Adjustment (LUPA) thresholds. Each of the 432 CMGs has a specific minimum number of visits (ranging from 2 to 6) required in a 30-day period to receive the full payment amount. If an agency provides fewer visits than the threshold for that specific CMG, the payment reverts to a per-visit rate, which is often substantially lower than the expected 30-day payment. This financial risk influences how agencies schedule visits to meet the patient’s clinical needs while remaining financially viable.