The Hospice DME Formulary Explained for Directors

When a DME management company quotes you a per diem rate, that rate comes with a list. The list is called the formulary. Everything on it is covered by your flat daily charge. Everything not on it gets billed separately.

That distinction - formulary versus non-formulary - determines how predictable your DME budget is. A strong formulary means your per diem covers most of what your patients actually need. A weak formulary means every atypical order generates an add-on charge you didn't budget for.

Most hospice directors know the per diem rate. Far fewer have read the formulary carefully. Here's what to look for and why it matters.

What a Formulary Is

A formulary is a defined list of equipment items that are included in your per diem rate. Think of it as the coverage list for your DME plan.

When a nurse orders a hospital bed for a patient, the charge for that bed is already built into your daily rate - no add-on. When a patient needs a low air loss mattress, the answer depends entirely on whether LAL mattresses are on your formulary. If they are, it's covered. If they aren't, it's a separate charge at a unit rate.

The formulary is not universal. Every DME management company builds their own, and every hospice negotiates theirs. What's on the formulary at one hospice may not be on the formulary at another - even with the same management company.

Formulary vs. Non-Formulary: The Core Difference

The goal is to have a formulary comprehensive enough that most of your orders are covered - and narrow enough that the per diem stays predictable. That balance requires building the formulary around your actual patient population, not a generic template.

How the Formulary Affects Your Per Diem

The broader your formulary, the higher your per diem rate tends to be - because the management company is absorbing more cost into the flat charge. The narrower your formulary, the lower your per diem rate looks on paper - but the more you pay in non-formulary add-ons in practice.

This is why comparing per diem rates without comparing formularies is almost meaningless. A $5.50 per diem with a 40-item formulary can cost significantly more in practice than a $6.50 per diem with a 90-item formulary, depending on what your patients actually need.

The right question isn't "what is your per diem?" It's "what does your per diem cover, and what does my patient population actually need?"

How Hospice DME Per Diem Rates Get Calculated

How to Evaluate Your Current Formulary

Pull your last 12 months of DME invoices and sort by line item. Look at:

• Which items appear most frequently as non-formulary charges
• Which non-formulary charges have the highest total cost
• Whether any of those items appear in the top 10 utilization data for your patient population

If the same items keep appearing as non-formulary charges every month, that's a signal your formulary wasn't built around your actual needs. The fix is either a formulary renegotiation to add those items or a contract review with an alternative management company.

High-Risk Items to Check in Any Formulary

These items are frequently missing from standard formularies - and frequently needed:

• Alternating pressure mattresses and low air loss systems - often listed as non-formulary even when standard mattresses are included
• Bariatric variants - bariatric beds, bariatric commodes, and bariatric wheelchairs are often separate line items even when the standard version is covered
• High-flow oxygen - standard concentrators are typically formulary; high-flow concentrators and oxygen tanks for higher-acuity patients often are not
• Positioning equipment - wedges, bolsters, and specialty positioning aids are commonly non-formulary
• Power mobility - power wheelchairs and scooters are almost always non-formulary, but it's worth knowing what the unit rate is before a patient needs one

What Your Contract Should Say About the Formulary

The formulary should be attached to the contract as a named exhibit - not referenced as "subject to change" without a process for how changes are made.

Watch for two things in particular:

Formulary amendment language - does the management company have the right to remove items from the formulary without your consent? If they can change the formulary mid-contract, your per diem coverage can shrink without your rate changing.

Non-formulary rate card - the rates for non-formulary items should be disclosed in writing before you sign. A contract that says non-formulary items are billed "at prevailing market rates" gives you no ability to budget for them.

What Hospices Get Wrong About DME Contracts Before They Sign

Building a Formulary Around Your Patients

The most effective formularies are built from utilization data. What did your patients actually order over the past 12-24 months? Which items appeared most often? Which non-formulary charges recurred month after month?

A formulary built from your data covers your patients. A generic formulary covers someone else's.

Qualis works with each hospice partner to review utilization data before finalizing formulary structure. The goal is a formulary comprehensive enough that surprises on the invoice are rare - not every month's explanation.

If you want to understand how your current formulary compares to your actual utilization, the conversation starts at qualis.com/contact-us.