The reflexive response to a DME cost problem is to look at the per diem rate. Is it too high? Can we negotiate it down? Can we find a vendor who charges less?
Those questions aren't wrong. But they're downstream from the real question: where is your DME money actually going?
Hospices that have meaningfully reduced their DME spend didn't do it by squeezing vendors on price. They did it by getting a clear view of their own utilization, finding the patterns that were costing them money, and changing those patterns. The rate conversation came after - and from a stronger position.
Here's what that process looks like.
Before you can reduce DME costs, you need to know what you're spending. Not the per diem rate. The all-in cost per patient per day - including non-formulary charges, delivery fees, and any admin costs.
Most hospice finance teams don't have this number readily available. They have the total invoice amount and the per diem rate. They don't have the split between formulary and non-formulary, or the cost-per-patient calculation that lets you compare your number against a benchmark.
Pulling that baseline is the first step. It's also the step that usually produces the first surprise.
How to Benchmark Hospice DME Spend Per Patient
Once you have 12 months of itemized invoice data, sort your non-formulary charges by item and frequency. Which items appear most often? Which items have the highest total cost over the year?
Non-formulary patterns reveal two things: items that should be added to your formulary (because you order them frequently enough that per diem coverage would cost less than unit-rate billing), and items that are being ordered more than clinical need justifies (because the ordering process has no visibility into cost).
A hospice that identifies its top five recurring non-formulary items and negotiates formulary coverage for three of them can see meaningful savings without changing anything about patient care.
Not all DME spend is equal. A hospice serving a high-acuity population with significant respiratory needs will have higher oxygen equipment costs than one with a lower-acuity mix. That's appropriate - it reflects the patients being served.
The question is whether your DME utilization matches your patient population, or whether it reflects ordering habits that aren't tied to clinical need.
Utilization analysis compares what your patients need - based on diagnoses, acuity levels, and care plans - against what is actually being ordered. Gaps between the two show up as either under-ordering (patients not getting what they need) or over-ordering (patients receiving equipment not tied to a documented clinical need).
Both are problems. The over-ordering side is where the cost savings tend to live.
Not all vendors perform equally on all items. One vendor may be reliable for beds and wheelchairs but consistently out of stock on oxygen equipment. Another may have strong respiratory capabilities but slow pickup turnaround.
When a primary vendor can't fill an order, one of two things happens: your team calls around to find a backup, or the patient waits. In some hospices, nurses are calling vendors directly and placing orders outside the system - orders that don't get logged, tracked, or reviewed.
Vendor performance data - order fulfillment rates, delivery timeframes, pickup completion times - shows you where the gaps are. It also shows you which vendors are consistently performing well and which are consistently creating follow-up work for your team.
Crossroads Hospice came to this process skeptical that DME data would reveal anything worth acting on. Their DME costs were high, but they assumed it reflected their patient population.
What the data showed was different. A significant portion of their non-formulary spend was concentrated in three item categories that their formulary didn't cover - items that their patient population used regularly, every month, at unit-rate pricing.
They renegotiated those items into the formulary. They also identified a vendor in one of their markets who was generating disproportionate pickup delays, leading to billing that extended past discharge dates.
The result was $2.5M in annual DME savings. No reduction in equipment quality. No change in patient access. Better visibility, better contract terms, one underperforming vendor replaced.
The analysis requires three things:
With those three inputs, it's possible to calculate your all-in cost per patient, identify your top non-formulary spend categories, and compare your per diem coverage against your actual utilization.
A DME management company should be able to do this analysis for you using your own data - not a generic estimate, but a projection based on what your patients have actually needed over the past year.
If you want to understand what your DME data shows about your cost structure, the conversation starts at qualis.com/contact-us.