Accounting for a Medicare-Certified Home Health Agency
PDGM 30-day periods, the Notice of Admission clock, revenue recognized across period boundaries, and the cost report — what makes Medicare-certified home health accounting different from non-medical home care, and where agencies lose money in the gap.
Medicare-certified home health and non-medical home care get discussed as one industry and accounted for as one business. They are not. One is episodic, case-mix-priced, and federally administered; the other is hourly, rate-priced, and paid by private families, Medicaid waiver programs, the VA, or long-term-care insurers.
An agency that runs both — many do — and reports them together generally cannot see which one is carrying the other.
What PDGM Actually Changed for the Books
The Patient-Driven Groupings Model pays across 30-day periods of care, with the payment amount driven by clinical grouping, functional impairment level, comorbidity adjustment, admission source, and whether the period is early or late in a sequence.
Two accounting consequences follow, and both are structural rather than technical:
Periods do not align to months. A patient admitted on the 18th generates a period that straddles two calendar months, and a longer length of stay generates a sequence of periods that straddle several. Revenue recognized on billing dates will therefore swing month to month for reasons that have nothing to do with how much care was delivered. Recognition needs to follow delivery across the period, which requires the ledger to know about periods at all.
Therapy volume no longer drives payment. Under the prior model, therapy visit thresholds moved reimbursement. Under PDGM they do not, which means an agency still managing to therapy utilization is optimizing against a payment rule that no longer exists. The books should show cost per period against payment per period, by clinical grouping — because that is now where margin actually varies.
The Notice of Admission Is a Cash Event, Not Paperwork
The NOA is submitted once at the start of care, generally within five calendar days. It replaced the Request for Anticipated Payment, and the replacement changed the economics of running an agency.
Under the old RAP, an agency received a partial payment upfront that funded some of the care it was about to deliver. That upfront payment is gone. The agency now delivers and funds an entire period of care before receiving anything.
And a late NOA generally triggers a payment reduction tied to the days of delay — which is a permanent revenue loss, not a timing difference. It does not reverse when the claim is eventually paid.
That makes the NOA one of the few administrative deadlines with a direct, measurable dollar consequence, and it belongs on a report someone reads weekly. Agencies frequently discover the leak only when a year of small reductions is added up.
The Cost Report Should Come Out of the Ledger
Medicare-certified agencies generally file an annual cost report, and it draws on the same underlying data as the financial statements — organized differently.
Most agencies treat these as two separate exercises: run the books one way all year, then reconstruct allocations into cost report format under deadline. That reconstruction is where errors and time go.
Aligning the chart of accounts to the report’s cost centers is a one-time structural decision. It removes an annual scramble, and more usefully, it makes cost-center data available during the year, when it could still inform a staffing or territory decision.
Where Agencies Actually Lose Money
Not in tax. In four places the books usually cannot show:
Unbilled care. Services delivered where documentation never supported a claim. Invisible in any report that starts from claims submitted.
Late NOAs. A direct payment reduction per occurrence, small individually and material annually.
Mis-grouped periods. Payment follows the clinical grouping and comorbidity coding. Coding that understates the patient’s actual complexity is money left on the table for care that was genuinely delivered.
Cross-subsidy between service lines. A profitable private-pay home care line quietly funding an unprofitable Medicare line, or the reverse. Neither is visible in combined reporting, and both change how an owner should be allocating capacity.
The Working Capital Reality
A Medicare-certified agency funds an entire 30-day period of care — clinician wages, mileage, supplies, supervision — before it collects anything for it. Then the claim has to clear.
That means growth consumes cash. Every additional admission widens the gap before it narrows it, and an agency scaling admissions on the strength of a profitable P&L can run out of money while being genuinely profitable.
The practical implication is that admission growth is a financing decision as much as an operational one, and the agency needs a cash forecast that models it as such — not a P&L that reports it after the fact.
Go deeper: Home Care Agency Cash Flow · Free tool: Cash Flow Gap Analyzer
Related: The Complete Tax & Accounting Guide for Home Care Agencies · Medicaid Waiver Home Care Accounting · What Is a Home Health Agency Worth?
This article describes general accounting principles and program mechanics and is not advice for a specific agency. Medicare payment rules, adjustment percentages, and submission requirements are set by CMS and change; confirm current requirements against current guidance rather than relying on a general description.
Common questions
What is the difference between home health and home care, for accounting purposes?
Home health generally means Medicare-certified skilled services — nursing, physical, occupational, or speech therapy delivered at home under a plan of care — paid through Medicare on a case-mix-adjusted basis. Home care generally means non-medical personal care and companionship, paid privately or through Medicaid waiver, VA, or long-term-care insurance, usually billed hourly. The economics are entirely different: one is episodic and case-mix-priced, the other is hourly and rate-priced, and an agency doing both needs its books to separate them or neither margin is visible.
How does PDGM change revenue recognition?
The Patient-Driven Groupings Model pays across 30-day periods of care with the amount driven by clinical grouping, functional impairment level, comorbidities, admission source, and whether the period is early or late — not by therapy visit volume. Because a patient's care commonly spans multiple periods and periods rarely align to calendar months, revenue has to be recognized across period boundaries rather than by billing date. An agency closing its books on cash received will show month-to-month swings that reflect billing timing rather than care delivered.
What is the Notice of Admission and why does it affect cash?
The NOA is the one-time notice an agency must submit at the start of care, generally within five calendar days, replacing the old split-percentage Request for Anticipated Payment. Submitting late generally results in a payment reduction tied to the days of delay, and that reduction is a real revenue loss rather than a timing difference. Because the RAP no longer provides an upfront partial payment, agencies now fund the full period of care before receiving anything, which changed the working capital profile of the whole business.
Does a home health agency have to file a Medicare cost report?
Medicare-certified agencies generally file an annual cost report, and it draws directly from the general ledger. Agencies whose chart of accounts does not align to the report's cost centers end up reconstructing allocations under deadline every year. Building the ledger to match the report is a one-time structural decision that removes a recurring annual scramble, and it makes the cost data usable during the year instead of only at filing.
How should an agency running both home health and home care structure its books?
As two service lines with separate revenue, separate direct cost, and shared overhead allocated on a defensible basis. They have different payers, different payment mechanics, different labor mixes, and frequently very different margins. Agencies that report them together typically have a strong line subsidizing a weak one without anyone being able to see which is which, and that stays invisible until the strong line softens.
Why is a profitable home health agency short of cash?
Because the agency delivers and pays for an entire 30-day period of care before it is paid for it, and clinicians are paid on a payroll cycle throughout. Combine that with claims that can be delayed by documentation or eligibility issues, and every additional admission consumes cash before it produces any. Growth widens the gap, which is why agencies scaling admissions need financed working capital rather than optimism.
Books that understand a 30-day period, not a monthly invoice.
We work with home health and home care agencies specifically, so the reporting is built around payment periods, payer mix, and margin per episode rather than a generic service-business template. A 15-minute intake is enough to scope your agency and send a proposal.
By Askia Roberts, CPA · GA License #CPA038784 · RTW Advisors