Hospice Pharmacy, Explained
What is a hospice PBM? And what comes after it.
How the pharmacy benefit manager model works in hospice, how it gets paid, and what it looks like when the decisions come back in-house.
The Short Version
- A hospice PBM runs the pharmacy side of the benefit on the hospice’s behalf: network, pricing, claims, formulary, prior authorizations, reporting.
- The model works after the claim and holds the hospice’s decisions. That is why answers always seem to arrive late, and why the rules feel like someone else’s.
- MerlinRx is not a PBM. It is the platform a hospice team uses to run its own benefit: the workload moves to the software, the decisions stay with the team.
- Six questions below separate any vendor’s model quickly. Bring them to every evaluation, including ours.
The job a hospice PBM does
A hospice PBM, or hospice pharmacy benefit manager, is the company a hospice hires to run the pharmacy side of its Medicare hospice benefit: building the pharmacy network, negotiating what each fill costs, adjudicating claims, maintaining a formulary, processing prior authorizations, and reporting on spend. Under the Medicare hospice benefit, a hospice is financially responsible for the medications related to its patients' terminal prognosis, and that responsibility comes with real operational work. Signing with a hospice PBM has traditionally been the way to get it done. In practice, that means some combination of:
A contracted pharmacy network
The local, mail-order, and specialty pharmacies that fills route through, and the terms each operates under.
Claims adjudication
The rules engine that approves, rejects, or modifies each claim as it arrives from the pharmacy.
Negotiated pricing
What each medication costs at each pharmacy, and how that price reaches the hospice invoice.
A formulary
Often the PBM's own, applied across the census to steer which medications are covered.
Prior authorization processing
The workflow that engages when a medication falls outside the rules.
Utilization and spend reporting
Usually monthly, summarizing what happened after it happened.
None of this work is optional, and for roughly two decades, signing with a hospice PBM has been the default way to get it done. The model is so established that many hospice operators have never been offered another shape for it.
How the model works
Two characteristics define the model. Most of what a hospice team experiences day to day follows from them.
1.It works after the claim
A PBM's machinery engages after the prescription is written. The order is signed, the claim arrives, the rules are applied, and an answer comes back: approved, rejected, or approved with conditions nobody at the bedside chose. The rejection at the pharmacy counter, the prior authorization discovered after the fact, the phone call to find out whether a medication is covered: each one traces back to that sequencing.
The answers existed the entire time. They arrive late because the model is built to respond to claims, not to inform orders.
2.It holds your decisions
A PBM makes decisions about the benefit on the hospice's behalf. It sets or steers the formulary, decides which pharmacies are in the network and on what terms, and determines which medications trigger a prior authorization and how long a fill can last. The hospice experiences those decisions as rules it lives under rather than choices it made.
How it gets paid
Per-claim fees, spread between what the hospice pays and what the pharmacy receives, manufacturer rebates, and in some cases ownership of the dispensing pharmacies themselves. Some arrangements are more transparent than others, but in most of them, the company applying the rules also has a financial stake in how money flows through them. We wrote about the most acute version of that structure in When Your PBM Owns the Pharmacy. However the fees are structured, they reach the hospice as one figure worth tracking: pharmacy cost per patient day, or PPD. Our hospice pharmacy PPD calculator shows what your cost per patient day is worth in annual dollars.
Six questions that separate any vendor's model
Evaluating a traditional hospice PBM, or a platform like ours? Ask these, and the model illuminates itself quickly.
Does the company own, or share a parent company with, any pharmacy in the network?
Is pricing pass-through? Will the invoice show what the pharmacy was actually paid for each fill?
Who sets the formulary, your team or theirs, and what does it take to change it?
When does your clinical team learn about coverage, price, and prior authorization requirements: before the order is signed, or after the claim comes back?
Can your staff see claims, fills, and spend as they happen, or in a report at month end?
If you leave, what happens to your pharmacy relationships and your data?
What comes after the PBM
Hospices did not hand the benefit to PBMs because they wanted someone else making the decisions. They did it because running the benefit themselves was impractical: the claims infrastructure, the pricing data, and the pharmacy connections were nowhere a hospice could reach. Outsourcing the workload meant outsourcing the decisions, because the two came bundled.
Modern software separates them. MerlinRx is not a PBM. It is hospice pharmacy software: the platform a hospice team uses to run its own pharmacy benefit, with the decisions staying in-house.
The PBM model
The MerlinRx platform
Answers arrive
PBM: After the claim has run
MerlinRx: Before the order is signed
The formulary
PBM: Theirs, applied to your census
MerlinRx: Yours, and yours to change
Prior authorizations
PBM: Discovered after the rejection
MerlinRx: Surfaced as work the day they open
Pricing
PBM: Spread and rebates, varies by contract
MerlinRx: Pass-through: the invoice shows the pharmacy’s rate
Your data
PBM: Summarized in a monthly report
MerlinRx: Live, as it happens
The decisions
PBM: Made on your behalf
MerlinRx: Made by your team, informed
The mechanical work, ePrescribing with EPCS, claims processing, prior authorization tracking, and invoicing with every line item visible, is carried by the platform, with the pharmacy network contracted on your behalf. The decisions a PBM would make for you become decisions your team makes, informed.
We answer the question directly on our FAQ page, and you can see how the platform handles each piece of the benefit in The MerlinRx Experience.
Hospice PBM questions, answered directly.
What is a hospice PBM?
A hospice PBM, or hospice pharmacy benefit manager, is a company a hospice hires to run the pharmacy side of its Medicare hospice benefit: the pharmacy network, negotiated pricing, claims adjudication, the formulary, prior authorizations, and spend reporting. The hospice stays financially responsible for the medications related to its patients’ terminal prognosis; the PBM handles the operational work of administering that responsibility.
How is a hospice PBM paid?
Through some combination of per-claim fees, spread between what the hospice pays and what the pharmacy is paid, manufacturer rebates, and in some arrangements ownership of the dispensing pharmacies. Transparency varies. In many models the company applying the coverage rules also has a financial stake in how money moves through them, which is why pass-through pricing, where the invoice shows the pharmacy’s actual rate, is worth asking about.
What is the difference between pass-through and spread pricing in hospice pharmacy?
In a pass-through arrangement, the invoice shows what the pharmacy was actually paid for each fill, and the hospice pays that amount plus a stated administrative fee. In a spread arrangement, the hospice pays one price, the pharmacy is paid a different (usually lower) price, and the difference is kept by the middle party — often without appearing on the invoice at all. Pass-through ties the vendor’s revenue to a fee you can see; spread ties it to how much you spend.
How MerlinRx prices the program →How much does a hospice PBM cost?
Hospice pharmacy is normalized as cost per patient day (PPD), so what you pay in raw dollars only means something at a given census size. Traditional per-diem PBM contracts price the whole program at a fixed PPD set at the start; pass-through models price the pharmacy’s actual reimbursement plus a stated administrative fee, so the number moves with utilization rather than a rate locked at contract signing. The question that matters is not what the PPD is, but what it includes and whether the vendor makes more when it goes up.
See what your PPD is worth in annual dollars →What are the alternatives to a hospice PBM?
Two main alternatives to the traditional hospice PBM model. The first is running the pharmacy benefit on your own with software: your team owns the network, the formulary, and the invoicing, and a platform handles the mechanical work of claims, prior authorizations, and reporting. The second is a pass-through arrangement where a partner administers the day-to-day, but the invoice shows what the pharmacy is actually paid, so nothing is hidden inside the rate. The traditional PBM is one option among several, not the default.
How MerlinRx works →Is MerlinRx a hospice PBM?
No. MerlinRx is hospice pharmacy software, not a PBM. It gives a hospice team the platform to run its own pharmacy benefit: ePrescribing with EPCS, claims processing, prior authorization tracking, formulary management, and pass-through invoicing with every line item visible. The mechanical work moves to the software; the decisions a PBM would make on the hospice’s behalf stay with the team.
What does PPD mean in hospice pharmacy?
PPD is pharmacy cost per patient day: total pharmacy spend, including medications and fees, divided by total patient days for the period. It is how hospices normalize pharmacy cost across census sizes and the figure most pharmacy contracts and board conversations are built around.
See what your PPD is worth in annual dollars →Evaluating hospice PBMs? Compare us.
Bring the six questions above to a conversation with our team. We will answer every one of them directly.
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