Medicare pays home health agencies pursuant to the Patient Driven Grouping Model (PDGM), which calculates payment based on a formula that considers admission source, diagnoses, and timing. Under PDGM, agencies are paid more for care provided to patients who start care from inpatient hospital or skilled nursing facility stays than for those who do not require that level of care and begin home care “from the community.” The “community” group includes patients who are admitted to care from home and those who have been in hospital observation status or other care characterized as outpatient hospital care.
According to a study published in Health Affairs (January 6, 2026), about half of all episodes of home care paid for in traditional Medicare are for patients with community, not institutional admissions. Medicare’s payment differential for the two groups does not fully reflect the patient care needs or provider responsibilities for the institutional vs. community patient groups. For example, as reported in Home Health Line, Volume 51, Issue 8, 2/23/2026, the study found:
- Community patients are often older than patients admitted from institutions;
- Community patients have higher rates of Alzheimer’s disease, depression, and cognitive impairments;
- Community patients may have had surgeries and significant outpatient care and often have more intense needs;
- Providers may face greater challenges to establish appropriate care for community patients than institutional patients. They often receive less information about these patients’ conditions, medications, living situations, and care needs.
The Medicare home health payment model does not recognize the complex issues involved in establishing and providing care for community patients. Assumptions built into the PDGM payment system, that it requires more to meet the needs of patients admitted from inpatient institutional care, should be revised to reflect the actual complexities involved in caring for community patients.
March 5, 2026 – J. Stein