How PDPM Works

What PDPM replaced

PDPM took effect October 1, 2019, replacing RUG-IV. The old model tied payment largely to the volume of therapy delivered, which created an incentive to provide more therapy than a resident might need. PDPM shifted the basis of payment to the resident’s clinical characteristics — diagnoses, function, cognition, comorbidities — as coded on the MDS assessment. The same care now pays the same regardless of therapy minutes.

The big picture

Every Part A SNF day is paid as the sum of six pieces: five case-mix-adjusted components plus a flat non-case-mix amount. Each resident is classified into one group per component, and each group carries a case-mix index (CMI) that scales that component’s base rate.

The five components

Each component is classified independently, from different MDS items. That’s the core idea of PDPM: a resident can be complex on one axis and simple on another, and the payment reflects each separately.

• PT and OT share the same inputs — the primary diagnosis’s clinical category and a function score built from ten Section GG items — so they’re classified together.
• SLP is driven by cognitive status, SLP-related comorbidities, and the presence of a swallowing disorder or mechanically altered diet.
• Nursing uses clinical conditions and extensive services along with a function score, in 25 groups derived from the RUG-IV nursing logic.
• NTA (non-therapy ancillary — drugs and supplies) is scored from a 50-item comorbidity point list; the points roll up into one of six NTA groups.
• Non-case-mix covers room, board, and capital. It’s the same for everyone and never varies by patient.

The variable per-diem schedule

PDPM recognizes that costs aren’t flat across a stay — non-therapy ancillary costs are front-loaded, while therapy tapers as a resident progresses. So three components are multiplied by a variable per-diem (VPD) factor that changes by day of stay:

• NTA pays ×3 for days 1–3, then drops to ×1 from day 4 onward.
• PT and OT pay full rate through day 20, then decline 2% every 7 days, bottoming out at 0.76× for days 98–100.
• SLP, Nursing, and Non-case-mix are flat — no VPD adjustment.

The HIPPS code

Once all five components are classified, the result is packed into a five-character HIPPS code (Health Insurance Prospective Payment System code) that goes on the claim. Each position carries specific meaning:

The first character covers both PT and OT (they’re classified together), the next three cover SLP, Nursing, and NTA, and the fifth is the assessment indicator showing which MDS assessment generated the code. You can decode or build one with the SNF HIPPS Decoder.

Putting it together

For any given day, the math is:

• For each of the five components: base rate × component CMI.
• Wage-index adjust the labor-related share of each component to the facility’s CBSA.
• Multiply PT, OT, and NTA by that day’s VPD factor.
• Add the five components plus the flat non-case-mix amount.
• Apply the facility’s SNF VBP adjustment.

That yields the case-mix-adjusted per-diem for the day. Sum the daily rates across the stay (each day using its VPD factor) for total expected payment.

Try it on the tools

Last reviewed May 2026. Educational overview only — verify specifics against the current CMS PDPM guidance and SNF PPS Final Rule before billing.