Article

Navigating PDPM changes in Pennsylvania Medicaid reimbursement

April 1, 2025 · Authored by Edward A. Klik, Kristopher Pattison

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.