Hospice
Hospice vendor contracts: what to watch when rates tighten
CMS set the FY 2027 hospice payment update at 2.3%, with the aggregate cap at $36,174.75. Whatever that means for your margin, your vendor contracts are one of the few costs you can renegotiate on your own schedule.
Pharmacy, DME, medical supplies and staffing tend to be worth the first look, along with the overhead contracts nobody has read in a while.
Where hospice vendor spend sits
Pharmacy services, often priced per patient day. Durable medical equipment and medical supplies. Inpatient and respite care at hospitals and nursing facilities. Contract staffing. Then the overhead: the EHR, phones, IT, answering service and courier.
The first group moves with census and the plan of care, so that's where pricing terms matter most. The overhead is usually where nobody has looked in years.
A worked example
Say your DME contract charges $5.50 per patient day with a monthly minimum of 1,500 patient days. That made sense when your average daily census was 55. With census now at 40, you use about 1,200 patient days a month but pay for 1,500, so about $1,650 a month goes to days you didn't use.
Over a year that's close to $20,000, and the fix may be a lower minimum or none at all. That's a conversation to have before the notice date, with the usage report in hand.
Rules that ride along with the contract
When a hospice arranges services through another organization, it must keep administrative and financial management and oversight of those services. The written agreement must require that services are authorized by the hospice, furnished safely by qualified personnel, and delivered according to the patient's plan of care (42 CFR 418.100(e)).
Inpatient care under arrangement needs its own written agreement (42 CFR 418.108(c)), agreements with nursing facilities have a set list of required items (42 CFR 418.112(c)), and a hospice may only contract for DME services with a supplier that meets Medicare's DMEPOS supplier quality and accreditation standards (42 CFR 418.106(f)(3)).
When you renegotiate, keep those terms in. A cheaper agreement that drops them can cost more at survey time.
What to watch
Are your per-diem or per-patient rates tied to anything?
Know whether a rate moves automatically, and when.
When is each notice deadline?
A review only helps if you still have time to act on it.
Are you paying minimums?
A volume minimum set when your census was higher may no longer fit.
What did you actually use last year?
Compare usage to the contract before you sit down with the vendor.
Does a new DME supplier meet Medicare's supplier standards?
A hospice may only contract for DME services with a supplier that meets the DMEPOS standards. Check before switching to a cheaper one.
Do the required terms survive the new rate?
A rate amendment shouldn't strip out the authorization, oversight or plan of care language.
How Sapphires helps
- See every vendor contract with its cost, owner and next notice date in one place.
- The dashboard shows the contract value sitting in the notice window, so you can pick which reviews to start first.
- Each rate change goes in as an amendment, and the contract shows what's in effect now.
- Tag contracts by service line and by category, and add your own categories, like inpatient care or DME.
CMS FY 2027 hospice final rule fact sheet
42 CFR 418.100(e): hospice professional management of arranged services
42 CFR 418.106(f)(3): hospice DME suppliers
42 CFR 418.108(c): hospice inpatient care under arrangements
42 CFR 418.112(c): hospice agreements with SNF/NF and ICF/IID