The Quiet Unraveling of a Standard Payment Model
Per-diem contracts have been the financial backbone of hospice care for decades. Under this model, Medicare and managed care organizations pay hospice providers a fixed daily rate – covering nursing visits, medication management, aide services, and coordination – regardless of how much care a patient actually requires on any given day. The logic was simple: predictable payments, manageable overhead, stable operations. For a long time, it worked.
That stability is now cracking.
Across multiple regions, independent hospice billing groups – the administrative and contracting entities that handle revenue cycle management for smaller hospice agencies – are walking away from per-diem arrangements with managed care organizations. The movement is not loud or sudden. There are no press conferences or policy announcements. But the pattern is consistent enough that it is starting to reshape how end-of-life care gets financed at the regional level, and the consequences for patients, providers, and payers are not fully sorted out yet.
Why Per-Diem Stopped Making Sense
The fixed daily rate sounds fair on paper, but the actual cost of hospice care does not distribute evenly across a patient’s enrollment. The final days and hours of life – often called the intensive comfort phase – require significantly more staff time, medication adjustments, and family support than the earlier weeks of enrollment. Under per-diem contracts, providers absorb that cost spike without any corresponding payment increase. For larger hospice systems with scale, this can be managed. For regional billing groups working with smaller agencies on thin margins, it has become a financial pressure point that keeps getting worse.
Add to that the administrative burden of managed care contracting. Private Medicare Advantage plans, which now cover a growing share of hospice-eligible patients, negotiate their own per-diem rates separately from traditional Medicare – and those rates are frequently lower than the CMS-set benchmark. Managed care plans also impose prior authorization requirements, utilization reviews, and documentation demands that add overhead costs without adding reimbursement. Regional billing groups, which typically operate with lean staff, find themselves spending significant administrative resources on plans that pay less than Medicare while requiring more paperwork per claim.
The breaking point for many of these groups is not a single bad contract. It is the accumulation of several: a managed care plan that pays 80 cents on the dollar relative to Medicare rates, a utilization review process that delays payment by 45 to 60 days, and an audit process that claws back previously paid claims over documentation technicalities. When billing groups run the numbers across their client agencies, the per-diem contracts with certain payers are not just low-margin – they are net negative after administrative costs are factored in.
What They Are Moving Toward Instead
Exiting per-diem does not mean exiting managed care entirely. Some billing groups are renegotiating toward episodic or value-based payment arrangements, where reimbursement is tied to patient outcomes and care coordination quality rather than a flat daily rate. These models are more complex to administer, but they allow providers to capture higher payments when care intensity justifies it – particularly during the final 72 hours of life, which can require near-continuous nursing presence. Other groups are simply narrowing their payer mix, declining to renew contracts with specific Medicare Advantage plans that consistently pay below a viable threshold.
A smaller number of regional billing groups are advising their client agencies to move toward a cash-pay or direct-contract model for certain patient populations, particularly those without Medicare Advantage coverage whose families have financial means to pay out of pocket for enhanced services. This is a fringe strategy for now, and it carries ethical complexity in a care setting defined by access and dignity. Still, it signals how financially strained some regional operators feel – strained enough to explore models that would have been considered non-starters five years ago.
The agencies most affected by these contract exits are not large regional systems – those organizations have leverage to negotiate better rates. The agencies left scrambling are the mid-sized independents that make up a substantial portion of community hospice capacity in rural and suburban markets. When their billing group exits a per-diem contract with a major Medicare Advantage plan, those agencies either find a new billing partner willing to take on the contract, renegotiate directly, or stop accepting patients covered by that plan. That last option is quietly happening in more markets than payers or policymakers have acknowledged publicly.
The Downstream Effect on Patients
When a hospice agency stops accepting a specific Medicare Advantage plan, patients enrolled in that plan lose access to that provider. In urban markets with multiple hospice options, this may be a manageable inconvenience. In rural counties where one or two agencies cover a geographic area of hundreds of square miles, it can mean patients are enrolled in a Medicare Advantage plan that functionally has no in-network hospice provider within a reasonable distance. Families in those situations face a choice between switching insurance – often logistically difficult for a terminally ill patient – or receiving care from a provider who is technically out of network, which shifts costs back to the family.
This is where the billing group exit strategy stops being a dry financial story and becomes something with real human weight. Hospice is not elective care. Patients who need it are, by definition, in the final months of life. Disruptions to provider access at that stage do not just cause administrative inconvenience – they can interrupt continuity of care in ways that affect pain management, family preparation, and the quality of someone’s final weeks.
Managed care organizations have not publicly responded to the regional pattern of hospice billing group exits, and most per-diem contracts include non-disclosure provisions that prevent providers from publicizing rate details. That opacity is part of why this shift has moved so quietly – and why the pressure on regional hospice capacity may be further along than any official data source currently reflects. This same dynamic of smaller regional healthcare operators being squeezed out of managed care contract structures is appearing in other specialty areas as well; regional mental health clinics facing similar contracting pressure have responded by selling to telehealth platforms rather than renegotiating terms. In hospice, the path out is harder to find, because the care itself cannot be digitized, and the patients cannot wait.
