You Understand the FY27 Rule. Now How Do You Operationalize It?
We were asked a simple question about the FY 2027 changes: how do we operationalize this?
It is the right question, and a revealing one. The FY 2027 changes have been explained from every angle, but how to operationalize them has not, and that is the part a hospice actually has to execute.
What actually changed
The session covered two changes from the FY 2027 hospice rule, plus a third development that belongs in the same conversation.
The first is the Service and Spending Variation Index, the SSVI, which scores each hospice on its non-hospice spending and its utilization patterns and publishes the result next to the hospice's name. It is an oversight and transparency tool, not a payment adjustment and not an automatic audit.
The second is the Non-Covered Items Addendum, which became mandatory for every hospice election on October 1. Each patient now receives a written determination of what the hospice has decided is unrelated to the terminal illness and therefore not covered, furnished within five days of election.
The PEPPER report is the third, though it is not part of the FY 2027 rule at all. It returned in June 2026 after a pause and reads the same kind of data: how a hospice's medication and non-hospice claim patterns compare to its peers. It belongs in the conversation because it points at the same decisions the other two do.
One point worth clearing up about the addendum: it only needs updating when the non-covered picture changes, when something becomes non-covered, moves from non-covered to covered, or a new non-covered item appears. Adding a medication the hospice does cover does not trigger an update.
Three instruments, one decision
All three instruments are driven by the same underlying decision. What each one measures is the hospice's coverage and relatedness determinations: the calls about which drugs and services belong under the benefit and which do not. The SSVI scores those calls, the PEPPER report tracks them, and the addendum puts them in writing for the patient.
That is what makes operationalizing the real question. The instruments measure that determination without changing it, and changing it is the actual work: one discipline, not three separate projects.
All three instruments read one thing: what the hospice covers, and why.
Where the lever actually is
Medications are the biggest piece of that decision, and the numbers bear it out.
CMS reported more than $2.8 billion in Medicare spending outside the hospice benefit for hospice patients in FY 2024. A large and unusual share of that is wound care. Ulcer-related skin-substitute claims jumped from about $18 million in FY 2020 to $714 million in FY 2024, nearly a 4,000% increase, and close to half of all the carrier-claim spending that year. That surge is part of a Medicare-wide skin-substitute billing problem CMS is already moving against, with a flat-rate payment reform, in effect since January 2026, that CMS projected would cut skin-substitute spending by roughly 90%. It is an anomaly, and it is not going to last.
Set that one anomaly aside, and medications are about 40% of what remains, a share that has held steady across FY 2020, FY 2022, and FY 2024. Of every structural dollar a hospice's patients cost Medicare outside the benefit, roughly forty cents is a drug.
Set the wound-care anomaly aside, and medications are about 40% of what hospices spend outside the benefit, year after year.
That makes medication coverage the single biggest lever a hospice can actually pull. The wound-care billing is being handled at the CMS level. What a hospice controls is getting the right drugs covered under the benefit, billed accurately, and deprescribed when it is clinically appropriate. That is the operational answer all three instruments keep pointing at.
Who actually does this work
None of this lives in a compliance department. The coverage determination gets made where the patient is assessed, by the admissions team on the way in and by the interdisciplinary team as the plan of care takes shape. Managers and medical directors guide those calls and make the final decision on the expensive ones, where the stakes are highest.
The common advice to tighten documentation aims at the wrong people. Better records describe the determination after it is made, while the determination itself happens upstream, in the clinical workflow, which is where operationalizing the rule has to start.
One discipline, not three projects
That question was closer to the answer than most of the advice being written about the FY 2027 rule. It is not three compliance projects stacked on an already-full plate, it is one discipline: getting the coverage and relatedness decision right where it is made, and making sure medications are covered, billed, and reviewed accordingly. Do that well and the SSVI, the PEPPER report, and the addendum take care of themselves, because all three are only ever reflecting it.
That is also where a hospice can see the most improvement the fastest, and it is where MerlinRx works, surfacing the coverage decision at the point of care so the right call is the easy one, and what gets billed outside the benefit reflects a deliberate determination rather than a gap.
If you want a clear read on where your own process stands, we offer an independent review of your medication coverage process, with a short write-up of what looks strong and what could be tighter.
Schedule an independent review at merlinrx.info/schedule.