What is the OASIS assessment, and why does it affect home health payment?

The OASIS, or Outcome and Assessment Information Set, is the standardized clinical assessment Medicare-certified home health agencies complete for each patient. Under PDGM, specific OASIS items, M1800 through M1860 and M1033, generate the points that set a 30-day period's functional impairment level, one of the five payment variables. Because that level comes directly from the OASIS record, a mismatch between the assessment and the clinician's own notes is a documented audit target.

How does a secondary diagnosis affect a home health claim's comorbidity adjustment?

A home health claim receives a low comorbidity adjustment when one qualifying secondary diagnosis appears on CMS's home health-specific comorbidity list, and a high comorbidity adjustment when two qualifying diagnoses interact on CMS's interaction list. Both tiers raise the payment above a claim with no comorbidity adjustment. Medicare auditors verify that each reported secondary diagnosis is documented in the certifying practitioner's or facility's medical record before accepting the adjustment.

What happens if a Medicare auditor finds an unsupported diagnosis code on a home health claim?

An unsupported diagnosis code can be removed from the claim and the HIPPS code recalculated, which may lower the payment and create an overpayment. If the corrected code changes the clinical grouping, functional impairment level, or comorbidity adjustment, the agency can receive a recoupment demand for that claim and, for a broader sample, an extrapolated demand across the full claims population the sample represents. An attorney can contest both the coding correction and the sampling methodology on appeal.

PDGM Coding and Audit Exposure for Home Health Agencies

Home health agencies are paid under the Patient-Driven Groupings Model (PDGM), which sets each 30-day payment period using the claim's principal diagnosis, a functional impairment score drawn from the OASIS assessment, and a comorbidity adjustment based on secondary diagnoses. Every one of those inputs is also what a Medicare audit checks first, and an unsupported code in any of the three can move the payment and the finding at the same time.

The Five Variables Behind Every PDGM Payment

CMS sorts every 30-day period of home health care into one of 432 case-mix groups, built from five variables: admission source, period timing, clinical grouping, functional impairment level, and comorbidity adjustment. The clinical grouping comes directly from the principal diagnosis reported on the claim. Admission source and timing come from claims history. Functional impairment level and comorbidity adjustment come from clinical documentation, which is also where Medicare auditors concentrate their review, because those two variables depend on how a clinician coded the visit rather than on an objective billing fact like a date of service.

Functional Impairment Scoring Runs on the OASIS Record

The functional impairment level is not assigned by a biller. It is calculated from a patient's responses to specific OASIS items, M1800 through M1860 and M1033, covering activities of daily living and risk of hospitalization. Each response earns points, and the sum sorts the period into a low, medium, or high impairment level. CMS sets the three thresholds so that roughly a third of periods within each clinical group fall into each level, and the thresholds vary by clinical group and are recalibrated against current claims data. An OASIS assessment that does not match the plan of care or the certifying clinician's own progress notes is an audit finding waiting to be made.

Comorbidity Adjustment Is the Audit's First Target

A 30-day period receives no comorbidity adjustment if its secondary diagnoses do not qualify, a low comorbidity adjustment if one qualifying secondary diagnosis appears on CMS's home health-specific comorbidity list, and a high comorbidity adjustment if two qualifying diagnoses appear together on the interaction list. Each tier raises the payment. Auditors test whether a reported secondary diagnosis is supported in the certifying practitioner's or facility's medical record, under the same coding guideline CMS applies to principal diagnoses. A secondary diagnosis listed on the claim but absent from the chart can change the Health Insurance Prospective Payment System (HIPPS) code and trigger a recoupment of the difference.

What Federal Reviews Have Found in Home Health Claims

CMS's CERT program measured a 7.7 percent improper payment rate on the roughly $16 billion Medicare paid home health agencies in 2023, about $1.2 billion. A February 2026 federal compliance audit of a Medicare-certified home health agency shows how a single coding choice moves that number: one reviewed claim carried a secondary diagnosis the medical record did not support, which left the payment unchanged, while a second claim coded as an institutional admission, when the record showed the patient came from the community after an emergency room visit with no inpatient stay, changed the HIPPS code and produced the audit's only overpayment. Recovery Audit Contractors and Medicare Administrative Contractors test the same five PDGM variables against the same record, layered on top of the local coverage determinations that govern homebound status and medical necessity, and a pattern found across a claims sample can be extrapolated to the full population under review. Agencies that receive an extrapolated demand can challenge the sampling methodology behind it, a process Challenging Extrapolation in Medicare Overpayment Demands addresses directly.

The diagnosis code that sets a PDGM payment is the same diagnosis code a Medicare auditor tests against the medical record.

It is critical that home health agencies promptly retain experienced healthcare defense counsel upon receiving an audit notice, additional documentation request, or other inquiry tied to PDGM coding. Early legal intervention can protect the agency's rights, help present the OASIS record and diagnosis coding accurately to the reviewing contractor, and preserve the agency's position on appeal; The Five Levels of Medicare Overpayment Appeals explains the procedural path if a demand follows. Delaying legal representation can significantly affect the outcome of a post-payment review and expose the agency to recoupment it could otherwise have contested.

Health Law Alliance represents home health agencies in Medicare post-payment reviews, including OASIS documentation issues and overpayment demand response. Health Law Alliance's attorneys have overseen 2,000+ audits and handled 5,000+ matters, with 25+ years of experience. Agencies facing a PDGM coding audit can schedule a free, confidential consultation with Health Law Alliance's hospice and home health audit defense team.