PDPM, or the Patient-Driven Payment Model, is the system Medicare uses to determine how much it pays skilled nursing facilities (SNFs) for each day a resident receives care under Medicare Part A. It replaced an older volume-based system in October 2019, shifting the focus from how many minutes of therapy a patient receives to what that patient actually needs based on their diagnosis, functional ability, and clinical complexity.
Under the previous system (called RUG-IV), facilities were paid more when they delivered more therapy minutes, which created an incentive to schedule therapy based on payment tiers rather than patient need. PDPM removed that incentive by tying payment to patient characteristics instead of service volume.
How PDPM Calculates the Daily Payment Rate
Each day a Medicare Part A resident stays in a skilled nursing facility, the facility receives a per-day payment. That payment is built from six separate components, five of which are adjusted based on the individual patient’s characteristics:
- Physical therapy (PT)
- Occupational therapy (OT)
- Speech-language pathology (SLP)
- Nursing
- Non-therapy ancillary (NTA), covering medications, supplies, and equipment
The sixth component is a non-case-mix adjusted portion that covers general overhead and room-and-board costs. It stays the same regardless of patient characteristics. Each of the five adjusted components has its own classification system, so two residents in the same facility can generate very different daily rates depending on their diagnoses, functional levels, and medical complexity.
Clinical Categories: The Starting Point
Every PDPM classification begins with the patient’s primary diagnosis. CMS maps ICD-10 diagnosis codes into 10 broad clinical categories. These categories drive much of the downstream classification. A patient recovering from a hip replacement, for example, falls into a different clinical category than someone admitted after a stroke or a pulmonary condition.
Some diagnoses can shift into a surgical category if the patient had a related procedure during the hospital stay that preceded the SNF admission. CMS distinguishes between major joint replacement or spinal surgery, other orthopedic surgeries, and non-orthopedic surgeries. This matters because surgical patients often have different therapy and nursing needs than medical patients with the same underlying condition. CMS periodically updates these diagnosis-to-category mappings. The fiscal year 2025 final rule, for instance, finalized several changes to improve diagnostic accuracy and consistency.
How the Therapy Components Work
Under the old system, therapy payment was directly tied to the number of minutes a therapist spent with the patient. PDPM breaks that link. Instead, the PT, OT, and SLP components each classify the patient into a payment group based on the clinical category, functional scores from standardized assessments, and certain condition-specific factors.
Functional scores come from Section GG of the Minimum Data Set (MDS), the standardized assessment tool used in all Medicare-certified nursing facilities. Section GG measures self-care and mobility activities like eating, toileting, bed mobility, and walking. Lower functional scores (meaning greater dependence) generally place a patient into a higher-paying therapy group, reflecting greater rehabilitation need.
PDPM does still regulate how therapy is delivered. Group and concurrent therapy sessions are limited to no more than 25% of a resident’s total therapy minutes. This ensures most therapy happens in individualized, one-on-one sessions while still allowing clinicians flexibility to use group settings when therapeutically appropriate.
Nursing Classification
The nursing component uses a hierarchical system with multiple tiers. The facility staff assessment determines which tier a resident falls into, starting at the top with the most resource-intensive patients and working down:
- Extensive Services: Residents receiving tracheostomy care, ventilator or respirator support, or isolation for active infectious disease.
- Special Care High: Residents who are comatose and completely dependent, have septicemia, or require complex diabetes management such as daily insulin injections combined with frequent order changes.
- Special Care Low: Residents with conditions that require significant but less intensive clinical intervention.
- Clinically Complex: Residents with medical needs that don’t reach the special care threshold but still require notable nursing resources.
- Behavioral Symptoms and Cognitive Performance: Residents classified primarily by cognitive and behavioral factors.
- Reduced Physical Function: The baseline tier for residents who don’t meet criteria above.
The system is hierarchical, meaning a resident is placed in the highest tier for which they qualify. A resident receiving ventilator support who also has behavioral symptoms would classify under Extensive Services, not Behavioral Symptoms. There are 25 total nursing case-mix groups spread across these tiers.
The Non-Therapy Ancillary (NTA) Component
The NTA component covers the cost of medications, medical supplies, and equipment that aren’t part of therapy. It uses a point-based system: each qualifying condition or treatment adds points to the resident’s NTA score, and higher scores mean higher daily payments for this component.
Point values reflect how expensive a condition typically is to manage. HIV/AIDS carries the highest weight at 8 points. Parenteral IV feeding at a high level adds 7 points. IV medications administered after admission add 5 points, and ventilator or respirator use adds 4. Conditions like diabetes, COPD, multiple sclerosis, wound infections, and bone or joint infections each add 2 points. Lower-weight conditions such as endocarditis, immune disorders, end-stage liver disease, and narcolepsy each add 1 point. A single resident can accumulate points from multiple qualifying conditions, and the total determines their NTA classification group.
Variable Per Diem Adjustments
Not every component pays the same rate for the entire length of stay. PDPM applies variable per diem adjustments to three of the six components: PT, OT, and NTA. The logic is straightforward. Therapy needs and ancillary costs tend to change over time, so the payment rate adjusts accordingly.
For physical therapy and occupational therapy, the daily rate stays at 100% for the first 20 days. Starting on day 21, it drops by 2 percentage points roughly every week. By days 98 through 100 (the end of a standard Medicare Part A benefit period), the adjustment factor has declined to 0.76, meaning the facility receives 76% of the base rate for those components. This gradual reduction reflects the expectation that patients generally need less intensive rehabilitation as their stay progresses.
The NTA adjustment works differently and more aggressively. For the first three days, the NTA component pays at triple the base rate (a 3.0 adjustment factor), recognizing that medication and supply costs are often highest right after admission when new treatments are being started. From day 4 onward, it drops to the standard 1.0 rate for the remainder of the stay.
The nursing and SLP components do not have variable per diem adjustments. They pay at the same rate from day 1 through day 100.
Why PDPM Matters for Patients and Families
If you or a family member is entering a skilled nursing facility after a hospital stay, PDPM shapes the care experience in several practical ways. Because payment is no longer tied to therapy minutes, you won’t see a facility pushing for a specific number of minutes per day just to hit a billing threshold. Therapy should be driven by clinical judgment about what the patient actually needs.
The model also means that patients with complex medical conditions but lower therapy needs aren’t financially disadvantaged for the facility. Under the old system, a medically complex patient who couldn’t tolerate intensive therapy generated less revenue, potentially making them a less attractive admission. PDPM’s nursing and NTA components ensure these patients bring appropriate payment that reflects their actual care costs.
For facilities, accurate clinical documentation has become more important than ever. The diagnosis, functional assessments, and condition coding on the MDS directly determine payment. This has pushed nursing homes to invest more heavily in clinical assessment accuracy, which, when done well, benefits patients by ensuring their full range of needs is captured and addressed.