# Home Health Agency Model

See how referrals, patient visits, caregiver capacity, and reimbursement shape a home health business.

- Canonical: https://finamodel.com/templates/home-health
- Excel download: https://finamodel.com/templates/home-health.xlsx
- Category: Healthcare
- Model type: Operating model
- Difficulty: Intermediate
- Audiences: Investors & analysts, Founders & operators, Home health agency owners and operators, Healthcare services investors, Search-fund and PE buyers, Lenders and analysts
- Tags: home-health, pdgm, medicare-reimbursement, healthcare-services, dcf

## Overview

This model helps you plan a home health provider delivering care in patients' homes. It connects referrals, patient visits, service mix, and reimbursement to caregiver staffing, travel, clinical support, and administrative costs.

Use it to assess a new branch, acquisition, or growth plan. Test patient demand, reimbursement, staffing, and service mix to see how they affect profitability, cash flow, and value.

## What's included

- Admissions & census inputs: Year-1 admissions, admission growth rate, average periods of care per admission
- PDGM payment & LUPA: case-mix-adjusted full 30-day rate, Medicare rate update, LUPA visit threshold, average LUPA visits, per-visit fee schedule and its escalation, LUPA share and its annual increase
- Visit intensity & discipline mix: visits per full case-mix period, five discipline mix weights (SN/PT/OT/HHA/MSW), five loaded cost-per-visit rates, wage growth
- Staffing & capex: visits per clinical FTE, field-device capex per net-new FTE, EMR platform capex %, useful life, base PP&E, base clinical FTE
- Cost structure: back-office FTE ratio and wage, compliance/QA FTE and wage, corporate FTE and wage, benefits load, accreditation & survey fees, marketing, G&A, liability insurance
- Tax: corporate tax rate on EBIT
- Working capital: Medicare billing lag (days), base claims receivable
- Valuation: WACC, terminal growth, net debt, shares outstanding
- Operations sheet: admissions and periods-of-care roll-forward, the PDGM/LUPA payment build, visit volume by period type and discipline, staffing (FTE), capex and PP&E, and the Medicare claims-receivable working-capital build
- Revenue sheet: PDGM revenue, revenue per period, full-rate-equivalent revenue per period, and the dollar cost of LUPA compression
- P&L sheet: revenue to net income with visit-based cost of care, the opex stack, margins, LUPA share, identity check
- FCF sheet: NOPAT, depreciation add-back, field and platform capex, the claims-receivable balance and its change, unlevered FCF, discount factor, PV
- Valuation sheet: sum of PV, terminal value, enterprise value, net debt, equity value, value per share, implied EV/EBITDA (Y7)
- Dashboard with admissions, periods of care, LUPA share, revenue, EBITDA margin, net income, enterprise value, value per share, a seven-year summary, trend grid and Revenue-to-Net-Income waterfall

## How the Home Health Agency Financial Model Works

This home health agency financial model projects a Medicare-certified provider delivering skilled nursing, therapy, home health aide and social work visits in patients' homes. It connects referral admissions to 30-day periods of care, prices them under PDGM with a LUPA visit threshold, builds clinical labor from visit volume, and carries the resulting cash flow through to an unlevered valuation.

### What Drives Volume and the 30-Day Payment Unit

The operating engine starts with referral admissions, modeled as a direct annual flow rather than a census roll-forward because home health census turns over within every 30-day period.

- Each admission converts into an average number of periods of care, so admissions multiplied by periods per admission produces total periods.

- Those periods are the payment unit under the Patient-Driven Groupings Model, meaning revenue is earned per case-mix-adjusted 30-day period rather than per visit.

- This structure makes the model sensitive to how quickly admissions grow and how many periods each admission generates, which together set the scale of the entire business.

### The LUPA Cliff and Blended Revenue per Period

A defining mechanic is the Low Utilization Payment Adjustment. If visits delivered in a period fall below a case-mix-specific threshold, the whole period reprices at a low per-visit fee schedule instead of the full case-mix rate.

- The model keeps full-rate and LUPA revenue as separate visible rows, then blends them by the LUPA share. That share rises as growth pushes into lower-density territory, where longer drive times compress visits per period.

- A full-rate-equivalent KPI row shows the blended rate pulling away from the full rate, and the gap is carried explicitly as the dollar cost of LUPA compression.

### Visit-Based Clinical Labor and the Cost Stack

Cost of care is built bottom-up from visits, not as a percent of revenue. Total visits split by period type, because full case-mix periods deliver the modeled visit intensity while LUPA periods deliver only the low LUPA count.

- Visits then split across five disciplines at fully-loaded, wage-escalated cost per visit covering mileage and benefits. This is the dominant cost line.

- Above it sits an opex stack: back-office FTE scaling with volume, fixed compliance and corporate FTE, accreditation fees, marketing, G&A and liability insurance, leading to EBITDA and net income.

### Cash Flow, Working Capital and Valuation

Because home health billing has a real lag between the close of a period and final claim payment, working capital is modeled as the Medicare claims receivable rather than a percent of revenue growth.

- That receivable grows as the agency scales, creating a visible cash call, though a light capex base can keep unlevered free cash flow positive.

- Free cash flow follows NOPAT plus depreciation, less capex and the change in the receivable, discounted at WACC.

- A Gordon-growth terminal value produces enterprise value, and after net debt, equity value and value per share, summarized on a one-page dashboard.

## PDGM pricing is a real cliff, not a curve

Medicare case-mix-adjusts the 30-day payment for clinical grouping, functional impairment, comorbidity and admission timing, but a period whose visit count falls below a case-mix-specific threshold is repriced entirely at a low flat per-visit fee schedule instead. The model keeps the full case-mix rate and the LUPA per-visit revenue as two separate visible rows and blends them by LUPA share, so the gap between the full-rate-equivalent line ($2,000 to $2,279) and the blended line ($1,866 to $1,951) is carried explicitly on the Revenue sheet as a dollar 'LUPA compression' figure - $134/period in Year 1 widening to $328/period by Year 7.

## LUPA share rises for a stated business reason, not a trend line

LUPA share climbs from 9.0% to 19.2% over the horizon because the agency's own growth strategy drives it there: admission growth is funded by expanding into lower-density, longer-drive-time service territory, where clinicians complete fewer visits per period, pushing a growing share of periods under the LUPA threshold. Growth and payment-mix quality trade off against each other by construction, exactly the kind of tension a real operator has to manage.

## Clinical labor and working capital are both real, bottom-up flows

Cost of care is built from total visits split by period type and discipline (SN/PT/OT/HHA/MSW) at a fully-loaded cost per visit, never a percent-of-revenue assumption - the dominant line on the P&L. Working capital is the genuine Medicare claims receivable, revenue times a blended billing-lag assumption, the same real-balance construction the library uses for a pawn shop's pledge book or a billing company's fee receivable, rather than a percentage of revenue growth.

## Workbook structure

### Cover

Workbook overview, sheet legend, units, and tab-colour key.

- Title and scope framing (Medicare-certified home health, not a hospital or clinic)
- Sheet-by-sheet purpose summary
- Units and tab-colour legend

### Dashboard

Headline KPIs, a seven-year summary, a trend grid, and an earnings waterfall.

- KPI cards for Year-1 admissions, periods of care, and LUPA share (Year 1 and Year 7)
- Revenue, EBITDA margin, net income, enterprise value and value per share
- Seven-year operating summary that feeds every chart
- Trend grid contrasting full-rate-equivalent and blended revenue per period, plus a Revenue-to-Net-Income waterfall

### Assumptions

Every driver in one sheet: admissions, the PDGM/LUPA payment build, visit intensity, staffing, costs, tax, working capital, valuation.

- Year-1 admissions, admission growth rate, average periods of care per admission
- Case-mix rate, Medicare rate update, LUPA threshold visits, average LUPA visits, per-visit fee schedule and escalation, LUPA share and its annual increase
- Visits per period, five discipline mix weights and loaded cost-per-visit rates, wage growth
- Visits per clinical FTE, field-equipment and EMR-platform capex, useful life, base PP&E and clinical FTE
- Back-office FTE ratio, compliance/QA and corporate FTE and wages, benefits load, accreditation & survey fees, marketing, G&A, liability insurance
- Corporate tax rate
- Billing lag (days) and base claims receivable
- WACC, terminal growth, net debt, shares

### Operations

Admissions and periods-of-care roll-forward, the PDGM/LUPA payment build, visit volume, staffing and capex.

- Referral admissions grow annually and convert into periods of care via the periods-per-admission multiple
- The full case-mix rate and per-visit LUPA fee schedule both inflate; LUPA share walks upward and resolves a blended revenue per period
- Total visits split by period type (full case-mix vs. LUPA) and across five clinical disciplines
- Clinical FTE derives from total visits over a visits-per-FTE productivity assumption; back-office, compliance/QA and corporate FTE scale or hold fixed
- Field-device and EMR-platform capex roll into PP&E and depreciation; the Medicare claims-receivable working-capital build

### Revenue

PDGM revenue, full-rate-equivalent revenue, and the dollar cost of the LUPA cliff, kept on separate visible rows.

- Periods of care times the blended revenue per period equals PDGM revenue
- Full-rate-equivalent revenue per period, carried as its own KPI row
- LUPA compression ($) - the explicit dollar gap between the full-rate and blended lines

### P&L

Revenue to net income with visit-based cost of care as a bottom-up derived flow.

- Cost of care = total visits x discipline mix x loaded cost per visit, never a percent-of-revenue assumption
- Gross profit and gross margin %
- Back-office, compliance/QA and corporate labour, accreditation & survey fees, marketing, G&A and liability insurance to EBITDA
- Depreciation to EBIT, corporate tax, net income
- Margins, LUPA share and revenue per period, and an identity check that resolves to zero

### FCF

Unlevered free cash flow from EBIT to a discounted present value.

- EBIT less unlevered tax equals NOPAT
- Add back depreciation
- Less field-device and EMR-platform capex
- Less the change in the Medicare claims receivable
- Unlevered FCF, discount factor and PV

### Valuation

An unlevered DCF to enterprise value, equity value, and value per share.

- Sum of explicit PV plus the PV of a Gordon-growth terminal value
- Enterprise value less net debt equals equity value
- Value per share and an implied EV/EBITDA multiple read off mature-year (Year 7) earnings

## Features

- **PDGM pricing is a real cliff, not a curve:** Medicare case-mix-adjusts the 30-day payment for clinical grouping, functional impairment, comorbidity and admission timing, but a period whose visit count falls below a case-mix-specific threshold is repriced entirely at a low flat per-visit fee schedule instead. The model keeps the full case-mix rate and the LUPA per-visit revenue as two separate visible rows and blends them by LUPA share, so the gap between the full-rate-equivalent line ($2,000 to $2,279) and the blended line ($1,866 to $1,951) is carried explicitly on the Revenue sheet as a dollar 'LUPA compression' figure - $134/period in Year 1 widening to $328/period by Year 7.
- **LUPA share rises for a stated business reason, not a trend line:** LUPA share climbs from 9.0% to 19.2% over the horizon because the agency's own growth strategy drives it there: admission growth is funded by expanding into lower-density, longer-drive-time service territory, where clinicians complete fewer visits per period, pushing a growing share of periods under the LUPA threshold. Growth and payment-mix quality trade off against each other by construction, exactly the kind of tension a real operator has to manage.
- **Clinical labor and working capital are both real, bottom-up flows:** Cost of care is built from total visits split by period type and discipline (SN/PT/OT/HHA/MSW) at a fully-loaded cost per visit, never a percent-of-revenue assumption - the dominant line on the P&L. Working capital is the genuine Medicare claims receivable, revenue times a blended billing-lag assumption, the same real-balance construction the library uses for a pawn shop's pledge book or a billing company's fee receivable, rather than a percentage of revenue growth.

## Use cases

- **Intrinsic valuation of a home health agency:** Set the admission and periods-per-admission path, the PDGM case-mix rate and LUPA mechanic, the visit-based cost stack and a WACC, and read enterprise value, equity value, value per share and an implied EV/EBITDA multiple off mature-year (Year 7) earnings, in the range small home health operators actually trade at.
- **PDGM and LUPA sensitivity testing:** Flex the LUPA threshold, the visit-intensity assumption, or the rate at which LUPA share climbs to see how much a staffing or scheduling improvement (or a further push into rural territory) moves blended revenue per period, EBITDA margin and value per share.
- **Growth-strategy and cash planning:** Flex admission growth, periods per admission, or the billing-lag assumption to see how fast the claims receivable grows alongside revenue, and whether the agency's light capex base is enough to keep unlevered free cash flow positive through the expansion.

## Frequently asked questions

### What is a home health agency financial model?

A home health agency financial model captures the seven-year operating economics and intrinsic value of a Medicare-certified home health agency - skilled nursing, PT, OT, HHA and medical social work delivered in the patient's home on referral from hospitals, SNFs and community physicians. It rolls referral admissions into 30-day periods of care, prices each period under Medicare's Patient-Driven Groupings Model including the LUPA (Low Utilization Payment Adjustment) visit-threshold cliff, derives clinical labor bottom-up from visit volume, and discounts an unlevered free-cash-flow stream to enterprise value, equity value and value per share.

### What is the LUPA cliff and why does it matter?

LUPA stands for Low Utilization Payment Adjustment. Medicare normally pays home health agencies a case-mix-adjusted rate for a full 30-day period of care, but if the visits actually delivered in that period fall below a case-mix-specific threshold, the whole period is repriced at a low flat per-visit fee schedule instead - a cliff, not a gradual haircut. The model keeps both revenue paths as separate visible rows and blends them by the modeled LUPA share, so the dollar cost of falling below the threshold is explicit rather than buried inside a single average rate.

### Why does LUPA share rise over the seven-year horizon?

Because it is modeled as the direct consequence of the agency's growth strategy rather than an unexplained trend. Admission growth is funded by expanding into new, lower-density and rural service territory, and longer drive times between patients in that territory compress how many visits a clinician can complete inside a 30-day period. As more periods fall under the visit threshold, LUPA share climbs from 9.0% in Year 1 to 19.2% by Year 7, pulling blended revenue per period below the full-rate-equivalent line by a widening dollar gap.

### Why does EBITDA margin ease instead of expand as the agency scales?

Because two real cost pressures narrowly outrun the operating leverage in this model. Wage inflation compounds against a blended revenue rate that is itself compressing as LUPA share rises, and while back-office, compliance/QA and corporate FTE are held fixed or scaled modestly so the fixed-cost base does deleverage, it is not enough to offset the other two effects. EBITDA margin eases from 9.2% in Year 1 to 7.3% by Year 7 - an honest result rather than a smoothed-over growth story.

## Related templates

- [Medical Billing (RCM) Model](https://finamodel.com/templates/medical-billing)
- [Outpatient Clinic Model](https://finamodel.com/templates/outpatient-clinic)
- [Physical Therapy Clinic Model](https://finamodel.com/templates/physical-therapy)