I think it's safe to say we have all been confused at some point when trying to understand how pharmacy pricing works. This article addresses the two different pricing structures that a pharmacy may employ and will hopefully help you to understand how it all works next time you are talking Per Diem vs. Fee for Service.  


Pharmacies have two different pricing structures: Per Diem and Fee for Service

Make sure you are comparing Apples-to-Apples.

In today’s hospice environment of ever increasing medical costs, hospices are looking for ways to balance their bottom line against the constant increase in CMS requirements. One way hospices are hoping to do this is by creating expected drug cost. This is the idea behind Per Diem pricing.

Per Diem pricing is paying a standard daily rate for each patient, as opposed to a Fee for Service where the hospice pays only for the drugs their patients receive.

This is very attractive to hospice administrators, and on the surface it appears to be the perfect way to predict drug costs. But, is it really?

The Per Diem fee is only for drugs listed on the formulary contract. The contract will include language about drug utilization and drugs not listed on the formulary. This is where many of the hidden costs may be found.

What other drugs do you frequently use that are not listed on the formulary?

How often is the formulary revised and you discover that a drug that was previously on formulary is no longer available under the Per Diem pricing? The increase in prices of generic drugs may exclude medicines that were once the mainstay of a hospice formulary. This may cause them be “carved out” and no longer a covered benefit. (Example: phenobarb 65mg/ml injection box of 25-1ml vials once cost the pharmacy a few dollars and now has a pharmacy cost of nearly $500.) This is a trend that will not likely reverse.


Here are some questions to ask yourself before entering into a contract with a pharmacy that employs a Per Diem pricing system:

1. Does your staff have access to a clinical pharmacist to help you utilize the most cost effective alternative, while still maintaining excellent care? Do you pay extra for that access?

2. Are you charged a premium for poor drug utilization patterns?

3. Are you charged delivery fees?

4. Does your pharmacy provide PCA pumps? Is that outside the Per Diem fee? How does that add in to your overall costs?


What about Fee for Service?

A hospice may achieve better overall results by changing to a Fee for Service model and working closely with a clinical pharmacist to reduce drug costs.

You will be able to set your own formulary. By working with your Medical Director, the clinical pharmacist and clinical managers you will have the flexibility to create a formulary that reflects only the medications you use.

You will have more opportunity work with your pharmacy on drug costs. (For example: Our pharmacy has been able to offer better deals on certain high use generic drugs.)

You can review your monthly bill and have a clearer picture of where your money is being spent. This will highlight your most expensive patients. Many times they are expensive because they are not well controlled on the plan of care. This will provide an opportunity to work with your physician and clinical pharmacist to make a better plan.

Your case managers will be more encouraged to actually look at their patient’s medications at each visit and evaluate the need for any updates to the patient’s drug requirements.

You will be more likely to stop medications that are no longer useful to the patient or where the risks outweigh the benefits at this time in their disease progression. We often hear “the patient is no longer swallowing pills so we want to change all medications to liquid." Perhaps it is time to stop and switch to comfort meds.


All of these things are considerations in your choice to choose a pharmacy that has Per Diem pricing as opposed to a pharmacy that is Fee for Service. The goal is always better care at a fair price. The more the pharmacy and the medical staff work together, the better outcome for the patient and the more cost effective the care will be.


Carol Reifenberger, Rph

Clinical Pharmacist

Palliative Pharmacy Solutions