PDGM Billing: How Home Health Payment Is Grouped

PDGM billing is how Medicare turns a home health claim and its OASIS assessment into the payment for a 30-day period. The model places each period in one of 432 payment groups, then adjusts the amount for low visit counts, shortened periods and unusually costly care. This guide explains each step for agency owners and billers, with the Medicare source linked. It covers Original Medicare only.

What is PDGM in home health billing?

PDGM, the Patient-Driven Groupings Model, is the case-mix system Medicare uses to pay home health periods of care that begin on or after January 1, 2020 (Claims Processing Manual, chapter 10). The Bipartisan Budget Act of 2018 required it. The law ended the use of therapy visit thresholds in setting payment and changed the unit of payment from 60 days to 30 (CMS Home Health PPS).

The 30-day period is a payment unit only. Each 60-day certification can include two 30-day periods (Benefit Policy Manual, chapter 7), and recertification and plan of care review still happen every 60 days (CMS Home Health PPS). Periods never overlap and can be shorter than 30 days. When a patient is discharged with goals met, the claim can go out before day 30, and it is not prorated unless more home care is billed in the same period (Claims Processing Manual, chapter 10).

How does PDGM group a 30-day period?

Each period falls into one subgroup in each of five categories, which gives 2 × 2 × 12 × 3 × 3 = 432 payment groups (CMS Home Health PPS).

Timing. The first 30-day period in a sequence is early, and later periods are late. A gap of 60 days or more between periods ends the sequence, so the next period is early again (CMS PDGM overview).

Admission source. A period is institutional when the patient left an acute or post-acute stay in the 14 days before the home health admission. Late periods are community unless there was an acute hospital stay in the prior 14 days, and a post-acute stay counts for a late period only if the patient was discharged from home health first (CMS PDGM overview). The claim reports the discharge with occurrence code 61 for an acute hospital, or 62 for a skilled nursing facility, inpatient rehabilitation facility, long-term care hospital or inpatient psychiatric facility. The 14 days count back from the day before the From date. Only the most recent discharge is reported, and a claim with more than one of these codes is returned (Claims Processing Manual, chapter 10). Outpatient, observation and emergency room stays are not reported (CMS Transmittal 10086).

Clinical group. The principal diagnosis places the period in one of 12 groups: Musculoskeletal Rehabilitation, Neuro/Stroke Rehabilitation, Wounds, Complex Nursing Interventions, Behavioral Health, and seven Medication Management, Teaching and Assessment (MMTA) groups. Those are Surgical Aftercare, Cardiac/Circulatory, Endocrine, Gastrointestinal Tract/Genitourinary System, Infectious Disease/Neoplasms/Blood-forming Diseases, Respiratory, and Other (CMS PDGM overview).

Functional impairment level. OASIS answers on grooming, dressing, bathing, toilet transferring, transferring, ambulation and risk of hospitalization (items M1800 through M1860 and M1033) earn points. The total is compared with thresholds that differ by clinical group to give a low, medium or high level (CMS PDGM overview).

Comorbidity adjustment. A period gets a low adjustment when one secondary diagnosis is linked to higher resource use, or a high adjustment when two or more are linked to higher resource use together. It never gets both (CMS PDGM overview).

Each group's case-mix weight is its predicted resource use divided by the average for all periods (CMS PDGM overview). The weight adjusts the national 30-day rate, which is also adjusted for area wages (CMS Home Health PPS).

How does the HIPPS code show the PDGM group?

Each group appears on the claim as a five-position HIPPS code on revenue code 0023. The first position combines admission source and timing, the second and third show the clinical group and functional level, the fourth shows the comorbidity level, and the fifth is a placeholder (Claims Processing Manual, chapter 10). Our home health billing codes guide lists the values.

A claim carries only one HIPPS code. The agency may enter the code its software expects or any valid code. Medicare's grouper combines the claim with the OASIS, assigns the code used for payment and replaces the one submitted (Claims Processing Manual, chapter 10), so the paid code can differ. Payments can also be adjusted on medical review, including the case-mix group (42 CFR 484.205).

Why does the principal diagnosis matter in PDGM?

The principal diagnosis sets the clinical group, so an incomplete code changes the whole grouping. It must follow the official ICD-10-CM coding guidelines and use the full code. Medicare may return a claim when the principal diagnosis is not enough to assign a payment group. Grouper return code 05 means the principal diagnosis is not assigned to a clinical group, and 03 means a coding issue flagged by the grouper's validity flag. Both send the claim back for correction (Claims Processing Manual, chapter 10). Our guide to why home health claims come back covers correcting returns.

Three timing rules apply (Claims Processing Manual, chapter 10):

• Diagnoses describe the patient on the claim's From date. A change during the period goes on the next claim.
• If a period spans the April 1 or October 1 code update, report codes valid after the update. The grouper version follows the From date.
• Grouping uses the claim's diagnoses, not the OASIS. They usually match on the first claim and on recertification claims, but the second claim in a 60-day period may differ. A diagnosis change alone does not require a follow-up assessment. A major decline or improvement does.

What is a LUPA under PDGM?

A low-utilization payment adjustment (LUPA) applies when a period has fewer visits than its group's threshold. Medicare then pays each visit at the national per-visit rate for its discipline, adjusted for area wages. Each threshold is the 10th percentile of visits for the group, with a minimum of 2 (42 CFR 484.230). The CY 2027 final rule gives an example: with a threshold of four, four or more visits get the full 30-day payment and three or fewer are paid per visit (CY 2027 final rule).

When PDGM started, thresholds ranged from 2 to 6 visits (CMS PDGM presentation, 2019). CMS recalibrates them each year, and the CY 2027 thresholds use CY 2025 data (CY 2027 fact sheet). Other LUPA rules (Claims Processing Manual, chapter 10):

• Non-routine supplies are not paid on top of LUPA visit payments.
• A LUPA claim later adjusted up to the threshold is repaid on the case-mix basis.
• When the LUPA period is the patient's only period, or the first in a sequence of adjacent periods, an add-on is paid on the earliest skilled nursing, physical therapy, occupational therapy or speech-language pathology visit. Adjacent means no more than 60 days between periods (42 CFR 484.230).
• One test for the add-on is whether the admission date matches the From date, so inaccurate admission dates, especially on claims sent out of order, can cause returns.

When is a 30-day period paid only in part?

A partial period payment applies when a patient transfers to another agency, or is discharged and readmitted to the same agency, within the same period. The claim reports patient discharge status 06, and payment is prorated by the days from the first billable service through the last, divided by 30 (Claims Processing Manual, chapter 10). It does not apply to transfers between agencies under common ownership (42 CFR 484.235).

When a patient dies during a period, Medicare pays the full period with no partial adjustment, and the claim's through date is the date of death (Claims Processing Manual, chapter 10).

How do PDGM outlier payments work?

An outlier payment is added when a period's estimated cost is unusually high. Medicare multiplies the 15-minute units of each discipline by national per-unit amounts, compares the result with the period payment plus a fixed-dollar loss amount, and pays a share of the excess (42 CFR 484.240). That share, the loss-sharing ratio, is 0.80 for CY 2027, and the fixed-dollar loss ratio is 0.29 (CY 2027 final rule). CMS sets the fixed-dollar loss ratio each year so outlier payments do not exceed 2.5 percent of total payments (CY 2027 fact sheet).

Up to 32 units a day, or 8 hours, count toward the estimate. Agencies submit nothing extra, and the outlier appears on the paid claim as value code 17. Each agency's outlier payments are capped at 10 percent of its total home health payments for the year, and claims held back by the cap are looked at again in a quarterly reconciliation (Claims Processing Manual, chapter 10).

What has to match between OASIS, the plan of care and the claim?

Submitting the OASIS is a condition of payment, and a claim with no matching assessment is returned. The claim and the assessment must agree on three items (Claims Processing Manual, chapter 10):

• The agency's CMS Certification Number (OASIS item M0010)
• The patient's Medicare number (M0063)
• The assessment completion date (M0090), reported on the claim with occurrence code 50

The assessment must be accepted before the claim is sent, must not be inactivated, and must have reason for assessment 01, 03, 04 or 05. If the claim uses a new Medicare number while the OASIS still has the old one, the claim is returned until M0063 is updated (Claims Processing Manual, chapter 10).

The plan of care must list all pertinent diagnoses, the types of services, and the frequency and duration of visits (42 CFR 484.60). The claim names the practitioner who signed the plan of care and the one who certified the patient, and it reports secondary diagnoses that coexisted when the plan of care was established (Claims Processing Manual, chapter 10).

Why can a paid PDGM claim change later?

If occurrence codes 61 and 62 are not on the claim, Medicare uses inpatient claims history to assign institutional groups (CGS PDGM overview). CMS's 2020 instructions describe the timing. If the facility has not billed when the home health claim processes, the period is paid as community, and a later inpatient claim adjusts it to an institutional group, with the difference on the next remittance. Medicare never receives claims for stays in non-Medicare facilities, such as a VA hospital, so the agency must identify those stays and report them with the occurrence code (CMS Transmittal 10086).

A later inpatient hospital, skilled nursing facility or swing bed claim that duplicates paid home health dates leads Medicare to non-cover those dates on the home health claim (Claims Processing Manual, chapter 10). LUPA adjustments and the outlier reconciliation can also change a paid claim.

How often do PDGM payment rates change?

Rates are set for each calendar year. Medicare's pricing software is updated each January, and rate changes are published in the Federal Register. The grouper gets its major update on January 1, with off-cycle updates on April 1 and October 1 (Claims Processing Manual, chapter 10). CMS also offers a web pricer. The end date of the 30-day period on the claim decides which year's rates apply (CY 2027 final rule).

CMS issued the CY 2027 final rule on November 4, 2026. For CY 2027, CMS finalized (CY 2027 fact sheet):

• A 2.1 percent home health payment update, estimated at $365 million.
• A temporary 3.0 percent reduction to the 30-day base rate, continuing CMS's recoupment of what it calculated as overpayments for CYs 2020 through 2025.
• An estimated 0.3 percent increase, or $50 million, from the updated fixed-dollar loss amount.
• An estimated aggregate increase of 2.4 percent, or $415 million, over CY 2026.
• Case-mix weights, functional levels, comorbidity subgroups and LUPA thresholds recalibrated with CY 2025 data.

The rule was published in the Federal Register on November 9, 2026, and its home health payment provisions take effect January 1, 2027. Per-visit rates rise 2.1 percent without the temporary reduction, and agencies that do not submit required quality data get 0.1 percent (CY 2027 final rule, official PDF). The rule's tables hold the dollar rates, and the CMS Home Health PPS page links each year's rules.

PDGM billing checklist

1. OASIS accepted, not inactivated, reason for assessment 01, 03, 04 or 05.
2. CMS Certification Number, Medicare number and completion date match, with occurrence code 50.
3. Principal diagnosis complete and valid as of the From date.
4. Discharges in the prior 14 days checked, with only the most recent reported as occurrence code 61 or 62.
5. One valid HIPPS code on one 0023 line.
6. Admission date accurate, especially on claims sent out of order.
7. Visits counted against the group's LUPA threshold.
8. Status 06 only for a transfer or a discharge and readmission within the period.
9. Each remittance compared with the claim, and later adjustments tracked.
10. Each year's final rule reviewed for new rates, weights and thresholds.

Related guides

See Medicare home health billing for the full billing cycle and home health billing codes for bill types and HIPPS values. For returned claims, read why home health claims come back. If you are weighing outside help, read choosing a home health billing company, and for what LMNS covers, see home health billing services. More guides: the home health notice of admission and billing for a new home health agency. The home health billing cheat sheet puts the deadlines and codes on one page.

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