Navigating PDPM changes in Pennsylvania Medicaid reimbursement

Pennsylvania Medicaid reimbursement for nursing facilities is undergoing a significant transformation. As the Centers for Medicare & Medicaid Services (CMS) phases out support for the Resource Utilization Group (RUG) reimbursement system, all states that have relied on RUGs to set Medicaid rates must pivot toward a new methodology. In Pennsylvania, that change is imminent. The state has proposed adopting a modified version of the Patient-Driven Payment Model (PDPM), focusing exclusively on the nursing component of the model to establish Medicaid case-mix indexes.

This transition is not merely administrative, it represents a fundamental shift in how resident care is documented, assessed and financially supported. Facilities that do not proactively adapt their clinical and operational practices to this new model risk significant reimbursement challenges and compliance concerns. However, with thoughtful planning and trusted guidance, this transition also presents an opportunity to strengthen clinical alignment, improve documentation and stabilize revenue in a time of regulatory change.

Understanding the policy shift

Under the RUGs methodology, reimbursement has historically been tied to high-cost nursing services or the volume of therapy services provided, often emphasizing therapy minutes of care as a primary driver of case-mix indexes. This structure, while standardized, has long been criticized for incentivizing service delivery over holistic resident need. PDPM, by contrast, shifts the emphasis to the clinical characteristics of each resident, particularly functional status and nursing complexity. It aims to align payments more closely with resident needs rather than service volume, offering a more resident-centered approach to reimbursement.

Pennsylvania’s adoption of PDPM is specific to Medicaid rate-setting and distinct from the federal implementation that governs Medicare reimbursement. Notably, the state has proposed using the nursing component of PDPM to determine its case-mix which requires a comprehensive retooling of assessment practices and clinical workflows.

While Pennsylvania plans to begin using PDPM-based case-mix data starting in August 2025, picture dates, May 1 and August 1, 2025, are expected to be used in the calculation of rates for calendar year 2026. Although RUGs will no longer be used beyond August 1, 2025, those two picture dates are expected to factor into rates during the transition. As a result, facilities that are underperforming under the RUG system during these picture dates may find themselves locked into unfavorable reimbursement levels for 2026 — even after PDPM is implemented.

Navigating uncertainty: Regulatory timelines and their implications

The compressed timeline for Pennsylvania’s transition adds urgency to the situation. While CMS has long communicated the end of support for RUGs, Pennsylvania along with many other case-mix states, have delayed finalizing paths forward until CMS mandated change. At the time of writing, the Pennsylvania Department of Human Services has not finalized regulatory guidance or updates to 55 PA Code 1187 and 1189 following the end of the comment period.

Despite not having published finalized updates to the Code, the state’s direction is clear: PDPM will replace RUGs, and the nursing component of the PDPM model will impact Pennsylvania Medicaid reimbursement beginning with the November 1 picture date in 2025. The implications for providers are substantial. Every nursing facility in the state with Medicaid participation — roughly 600 nursing facilities in the state of Pennsylvania — will be affected, regardless of ownership structure. This includes both nonprofit and for-profit entities, as well as the limited number of county-operated nursing homes.

For these providers, the transition to PDPM is not optional. The clock is ticking and those who delay preparation may find themselves at a significant financial and operational disadvantage.

Operationalizing the change: Clinical, financial and organizational readiness

Transitioning to PDPM requires a multifaceted response. First and foremost, clinical teams must recalibrate their assessment and documentation practices to reflect the new model’s criteria. Under PDPM, resident function plays a pivotal role in classification. This means that nurse aides and licensed nurses must understand not only how to observe and document resident function, but also how to interpret and encode those observations correctly within the PDPM framework.

For example, under RUGs, higher numeric values indicate greater resident dependence. Under PDPM, that is reversed — requiring both a cultural and educational shift for frontline caregivers. Additionally, PDPM operates under a shorter lookback window than RUGs, placing greater emphasis on real-time documentation and current clinical status. Failure to adjust documentation practices from the RUG-based model may result in missed reimbursement opportunities and inaccuracies in quality reporting.

Beyond the clinical realm, the transition can also have significant financial implications. Facilities must reassess how their resident population is reflected in the new case-mix system. This involves analyzing resident-level data, calculating projected case-mix indexes and identifying areas where documentation improvements can yield stability in reimbursement under PDPM. Critically, the May 1 and August 1, 2025, picture dates serve as anchors for the 2026 Medicaid rates.

Looking ahead: Timing and next steps

While the transition may not be fully complete until 2027, the actions facilities take today will define their financial and operational landscape for the next couple of years. The most critical preparation period is the first half of 2025, particularly in the lead-up to the May 1 and August 1, 2025, picture dates. Providers must begin reviewing assessment practices immediately and should aim to implement documentation changes well before August of 2025, when the PDPM methodology is expected to begin to be integrated into the state’s rate calculations.

Engagement with an experienced advisory team during this window can make the difference between a smooth, strategic transition and a reactive, revenue-losing scramble.

The PDPM transition in Pennsylvania is more than a regulatory update, it is a transformation in focus of how resident needs are documented and how documentation impacts payment and quality reporting. It demands a strategic response from providers, one that bridges clinical excellence with financial sustainability. At Baker Tilly, we are proud to support that journey. With deep expertise in Medicaid reimbursement, hands-on clinical insight and a track record of assisting states and providers navigate this exact transition, we are ready to help Pennsylvania’s nursing facilities prepare with confidence.

To learn more or begin a readiness assessment, contact our senior living advisory services team today.