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Get Up to Speed on PDGM and OASIS

Home health professionals play a pivotal role in the reimbursement process. Their practice must be based on a firm foundation of knowledge that incorporates the Patient Driven Groupings Model, Medicare eligibility requirements, the role of OASIS in reimbursement, and strategies that can be used to help optimize home health agency reimbursement under the Centers for Medicare and Medicaid Services (CMS) payment system.

The Medicare Home Health Payment System is a third-party payment system that utilizes Home Health Resource Groups (HHRGs) to establish predetermined payment rates, adjusted for the health condition and care needs of the Medicare beneficiary, in advance of care delivery regardless of the actual cost of services provided.

Recognizing that the costs of care for identical patients in different parts of the country vary according to the disparity in salaries, Medicare includes a wage index adjustment to the predetermined payment rate based on geographic variation in wages. The wage index for a given area is part of the equation that determines the final payment. It is also possible that additional documentation reviews may be required by private insurance payers, which may be part of the final payment equation for those organizations.

The current home health payment system, the Patient Driven Groupings Model (PDGM), took effect January 1. We have provided tips on transitioning to PDGM in a previous blog post and in our webinar with BlackTree Healthcare Consulting. Some of the basic considerations for reimbursement are outlined below.

30-Day Periods

For patients who meet Medicare eligibility requirements, Medicare will reimburse home health agencies for every 30-day period of care they provide. The initial 30-day period of care begins on the start of care date, which is the date the agency first initiates services. PDGM assigns varying payment weights to periods for patients with similar needs and characteristics. Each 30-day period is then assigned into one of the 432 case-mix groups.


PDGM brings several significant changes to billing. One aspect is the Request for Anticipated Payment (RAP)/final claim submission. CMS decided to keep the RAP/final claim submission process under the condition that new agencies as of 01/01/2019 would not receive RAP payments under PDGM but are required to submit a “no pay” RAP. It also includes the provision to eliminate RAPs altogether starting in 2021.

Home Health Resource Grouping

The first component of HHRG is timing and admission source.


The payment period will be classified as either an early 30-day period or a late 30-day period. The timing component is based on the information from the common working file (CWF).

Admission Source

Admission source will be classified into one of two categories: community or institutional. Source is considered institutional if the patient was discharged from an inpatient hospital, skilled nursing facility, inpatient rehabilitation facility, long-term care hospital, or inpatient psychiatric facility. Any other setting will be considered a community source. The admission source will be determined by Medicare based on the information in the CWF.

Clinical Grouping

Under PDGM, patients are categorized into 12 clinical groups based solely on the primary diagnosis code reported on the Medicare claim. The 12 clinical groups include:

  • Musculoskeletal rehabilitation
  • Neuro-stroke rehabilitation
  • Wound care
  • Behavioral healthcare
  • Complex nursing interventions
  • MMTA aftercare
  • MMTA cardiac/circulatory
  • MMTA endocrine
  • MMTA gastrointestinal/genitourinary
  • MMTA infectious diseases/neoplasms/blood-forming diseases
  • MMTA respiratory
  • MMTA other

A questionable encounter is a situation where the primary diagnosis code does not fit into the list of acceptable ICD-10 diagnosis codes within one of the 12 clinical groupings. If the claim is submitted and the diagnosis code does not fit into a group, the claim will automatically be rejected.

Comorbidity Adjustment

CMS has noted that there are some patients who have several diagnoses and multiple conditions and do not fit into just one diagnostic category. Having several conditions corresponds to additional resource use because different disciplines and service types are brought in to provide care for the patient. The comorbidity adjustment has been established to address this issue.


A Low Utilization Payment Adjustment (LUPA) is a way of paying home health providers on a per-visit basis when the number of actual home health visits falls below an established threshold. LUPA payments are not case-mix adjusted, but instead paid based on a national per-visit rate.


A partial episode payment (PEP) adjustment occurs anytime you discharge a patient and they then readmit back to your agency or to another home health agency during the 30-day period. A PEP also occurs when the patient elects to transfer to another home health agency. Instead of reimbursing your agency for the entire 30-day period, Medicare adjusts the payment to reflect the length of time the beneficiary was under your care.

Outlier Payments

CMS has mandated new guidelines for applying rural add-on payments for episodes and visits ending during CYs 2019 through 2022.

  • Outlier payments are afforded to high therapy utilization patients who have episodes where cost of care exceeds the payment rate by the fixed loss threshold amount.
  • Payments are made for episodes where the expected cost exceeds a specific threshold amount.

Discharge Issues

Some special discharge circumstances affect the payment home health agencies receive.

Hospice Election

If a patient decides to receive hospice care before the end of the home health care episode, the agency will receive the full episode payment if there was no PEP adjustment or LUPA.


In the event of a patient death, the agency will receive the entire care episode payment unless the agency receives a LUPA.

No Longer Eligible

When the agency discharges a patient because they are no longer eligible for the Medicare Home Health Benefit, the agency will receive full payment for the care episode or a LUPA, if applicable.

Discontinuation of Services

If the agency discontinues services because of a patient’s refusal, a documented safety or abuse threat, or noncompliance, the agency will receive the full 30-day period of care payment unless a LUPA applies.

Home health agencies must provide written notice to patients when their Medicare-covered services are ending. If the patient files an appeal, then the health plan must deliver a detailed explanation of why services should end.

Non-Routine Supplies

All medical supplies (routine and non-routine) must be provided by the home health agency while the patient is under a home health plan of care and are included in the base payment rate. Examples of supplies that can be considered non-routine include dressings for wound care, I.V. supplies, ostomy supplies, catheters, and catheter supplies.

To account for patients with historically high supply costs, two of the twelve clinical groupings that were created have significant supply costs associated with them: wound care patients and patients in the complex nursing group.

Consolidated Billing

Medicare requires all home health agencies to provide all covered home health services, whether directly or under arrangement, and bill for such covered home health services.

While osteoporosis drugs are included under consolidated billing, payment is not bundled into the period of care/episodic payment rate. Additionally, a separate payment will be made for negative-pressure wound therapy using a disposable device because it is excluded from the period of care/episodic rate and must be billed by the agency.

Finally, it is important to note that durable medical equipment (DME) and supplies covered as DME are not part of the home health rates or the consolidated billing requirements that govern Medicare home health reimbursement.

Your Role

While you may not be directly involved in billing and other administrative tasks, knowing the Home Health Payment System, Medicare eligibility requirements, and the role of OASIS allows you to understand important requirements related to reimbursement. You should be mindful of how your actions and documentation affect reimbursement and use effective strategies for maximal impact.


*NOTE: Unless otherwise stated, information on the Home Health Payment System was sourced from Chapter 7, Home Health Services of the Medicare Benefit Policy Manual updated in 2019 by the Centers for Medicare and Medicaid Services, the CMS website Home Health Agency (HHA) Center, and the CMS Final Rule for home health.


PDGM Toolkit

The largest regulatory change to hit home health agencies in decades is here, and you need to stay compliant. This toolkit outlines four key facets you should keep in mind as you strive to optimize reimbursement and ensure quality care under the new model.

Download Toolkit →

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