The recent clarification by CMS indicates that hospices must bear the cost of virtually all medications taken by their patients, rather than just those related to the hospice diagnoses. This action should send every provider scurrying for their pharmacy-provider agreement and demanding an in person meeting with their pharmacy representative. Before doing so, take some time to review your agreement. Your next step should be to speak to your finance people and clinical staff to gain a better understanding of the services provided and how you are being charged.

Pricing models for hospice fall into two categories:

  • Fee for Service Where the hospice pays only for the drugs dispensed on a prescription by prescription basis, and 
  • “Per Diem” Where the hospice pays a flat fee per patient regardless of how many or how few prescriptions are ordered. Following the assumption that the number of prescriptions paid for by the hospice is likely to increase under the new ruling, per diems may seem to be a more attractive way to proceed. Due to other factors, this might not be the best course. 

Hospices currently under per diem agreements should first understand how the per diem is calculated. Some older hospice pharmacy agreements state that the per diem is calculated only from the cost of the analgesics being utilized (much of this is buried in the fine print, so read with care). Any effort on the part of the hospice to control drug utilization is useless (from a financial point-of-view) unless it specifically targets that one class of medications. 

Newer per diems may include all medications dispensed. If we assume that the hospices will be paying for more medications, that per diem will likely increase. Since the hospice pharmacy is currently profiling all medications (whether dispensed by that particular pharmacy or not), the pharmacy may have a better handle on what the new costs will be. This gives the pharmacy provider a decided advantage over the hospice in negotiating new per diem agreements. 

Utilizing a fee-for-service program maybe more advantageous, especially in the next several months, because it will provide a true picture of the costs incurred. This will give the hospice a better picture of where to start from if they choose to negotiate a per diem. It will also give emphasis to the need for effort by the clinical team to truly evaluate and eliminate medications not necessary to end-of-life care. Per diems often mask the need for this critical function, at least until the bill comes due and the per diem has to be re-negotiated. Also, the cost of individual prescriptions has decreased dramatically as more medications have changed from brand to generic so individual prescriptions on the whole are less expensive than they once were.

Another savings strategy to consider is to examine the services being provided. The goal would be to determine if those services are truly still necessary. In discussions with clinical staff, it is evident that the most important factors in their minds are quick access to a clinical pharmacist and availability of medications , especially analgesics. Many hospice pharmacy providers are moving from a mail-order based model to a Pharmacy Benefit Management (PBM) model. In the PBM model, the hospice pharmacy provides the clinical expertise but the medications are dispensed by local pharmacies within their networks. This provides the pharmacy with savings on inventory and processing costs, and these savings can become a chip in the negotiations between hospice and vendor. It must be said, however, that utilizing local pharmacies may place a larger burden on the hospice clinical staff and this must be taken into consideration when deciding if this is the path a specific hospice should take.

These are a few of the factors that need to be considered when evaluating pharmacy pricing, and pharmacy is only one of the vendors that need constant review. For example, in recent years a hospice’s Durable Medical Equipment (DME) and Medical Supply costs have outpaced pharmacy. Examining these costs, and their clinical impact, is key to continuing to have a viable hospice in this difficult period.