Introducing Medicare’s PDPM For Healthcare Reimbursement

Patient Driven Payment Model

The new payment system established by CMS will have a wide range of impacts, but the goal will remain appropriate payment for proper patient care.

*This is the first in a series of articles that will focus on the new Patient Driven Payment Model.

As of Oct. 1, 2019, the previously proposed Patient Driven Payment Model (PDPM) became a reality and placed another financial stamp on the meaning of quality healthcare. Created with the intent to ensure that government-spent dollars on the healthcare system’s oldest and sickest of patients are correctly allocated for diagnosis-specific treatments, the new system is expected to bring into harmony patients’ diagnoses, care plans, and, ultimately, provider reimbursement. While long-term care facilities may see the most significant impact in the short term and moving forward for the foreseeable future, the model will cast a wide enough net that its presence will be felt in the acute hospital setting and home care. The common thread to be weaved throughout the continuum of care will be a shared responsibility to diligently assess, document, code, and bill for patient care that results in holistic treatment that reflects the money spent by the Centers for Medicare & Medicaid Services. Translation: Proper reimbursement is commensurate with proving that patients are receiving the services most needed to address their diagnoses and that the services being delivered are being done so at a level that address the patients’ clinical needs.
“The new system has really done a lot to recognize the needs of the ‘whole’ patient, and it is a system that was needed,” said Christina Ramsey, RN, MSN, GNP-BC, LNCC, CWS, chair of the post-acute/long-term care special interest group with the Gerontological Advanced Practice Nurses Association (GAPNA). “And this system was needed. It is more structured than Medicare’s Prospective Payment Systems, and I think we will see only positives once we get through the major learning curve we are seeing now with coding and documentation.”

Payment Through The PDPM

According to CMS officials, the PDPM utilizes a combination of components to derive payment based on patients’ characteristics. Different patient characteristics are used to determine a patient’s classification into a case-mix group within each of the case-mix adjusted payment components. The components, all of which have reportedly been determined by data-driven, stakeholder-vetted patient characteristics, include nursing, physical therapy, occupational therapy, speech-language pathology, and non-therapy ancillary care. Each of the five components will have a calculated per diem payment rate that will be added together with a sixth component, what’s known as a non-case mix rate component, to get the total rate. Each patient is classified into one group for each of the five components and payment for each component is determined by a formula that multiples what’s known as the patient’s case-mix index, which corresponds to a group of services rendered, by a wage-adjusted component base payment rate, and then by the specific day. CMS projects aggregate payments to SNFs will increase by $851 million, or 2.4 percent, for FY 2020 compared to FY 2019. CMS officials also estimate that the PDPM will improve payments in the following ways:1

  • Better payment accuracy and appropriateness through a focus on the patient, as opposed to the volume of healthcare services provided
  • Significantly reduced administrative burden on healthcare providers
  • Improved payments to currently underserved beneficiaries without increasing total Medicare payments.

According to CMS officials, each component utilizes different criteria as the basis for its patient classification, such as functional scores for physical and occupational therapy, presence of acute neurologic condition for speech-language pathology, and a comorbidity score for non-therapy ancillary care. Nursing utilizes the same characteristics as addressed under Resource Utilization Group (RUG-IV).2

PDPM & Coding

There are two ways in which ICD-10 codes will be used under PDPM, according to CMS officials. First, providers will be required to report the patient’s primary diagnosis for the healthcare stay. Each primary diagnosis is mapped to clinical categories that are then used as part of the patient’s classification under the physical therapy, occupational therapy, and speech-language pathology components.

Secondly, ICD-10 codes are used to report additional patient diagnoses and comorbidities that affect care planning and reimbursement.

Ramsey said that the importance on coding may result in healthcare staffs developing databases specifically for identifying the most commonly accepted ICD-10 codes to fulfill PDPM reimbursement and that all providers involved in PDPM processes should anticipate an arduous and potentially frustrating transition. 

“Under PDPM, the process of receiving patients is very much different than previously,” she said. “Information is much more specific and detailed, which leads to more time being needed to complete these assessments. Reimbursement will be based on accurate coding, which is based on accurate comprehensive assessment. The better the assessment and the subsequent documentation, the more likely that coding will align with what’s needed for reimbursement.”

Colibri will discuss the impact on patient assessment and care planning in the next installment of this article series.   


  1. SNF PPS: Patient Driven Payment Model. Centers for Medicare & Medicaid Services. 2020. Accessed online:
  2. Medicare Resource Utilization Group (RUG) Aggregate Table, CY2013. Data.CMS.Gov. 2018. Accessed online:

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