Medicaid Overpays Millions for Diapers

Report finds program could save 23% on annual $266 million diaper bill

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January 27, 2014

A lack of competitive bidding processes among state Medicaid agencies caused the program to overpay for diapers by about $62 million in 2012, according to a report released by federal auditors on Monday.

Only five state Medicaid agencies have implemented competitive bidding programs for "disposable incontinence supplies," according to the inspector general for the department of Health and Human Services.

Those states reported saving up to of 50 percent on those supplies, the IG report found.

States nationwide implemented cost control mechanisms, the report noted, but Medicaid could have saved about $62 million if competitive bidding processes were adopted nationwide.

Those savings would amount to 23 percent of the Medicaid bill for disposable incontinence supplies, which include nine categories of diapers and liners, including products for adults and children.

Medicaid requires the coverage of home health services used by patients who qualify for nursing care. That requirement includes coverage for diapers, which accounted for $266 million in Medicaid spending in 2012.

Ben Domenech, a senior fellow at the Heartland Institute, said excessive spending on incontinence supplies underscores a deeper and more long-term problem in the Medicaid system.

"One of the reasons Medicaid is spending so much on adult diapers in the first place is that the Medicaid program has morphed into an uncomfortable combination of two programs," Domenech explained in an email.

In addition to its role as an insurer for low-income Americans, he said, Medicaid has become "a long-term care program which provides chronic care and nursing home services for seniors."

Domenech lauded a proposal introduced on Monday by Sens. Tom Coburn (R., Okla.), Orrin Hatch (R., Utah), and Richard Burr (R., N.C.) that would repeal Obamacare and replace it with, the senators say, a more "sustainable, affordable, patient-centered" system.

The legislation would roll back Obamacare’s expansion of the Medicaid program and allow qualifying patients to apply Medicaid benefits towards a private insurance plan.

Domenech said the bill would head off the potentially unsustainable growth in Medicaid spending resulting from its increasing role in insuring the elderly and indigent.

That portion of the program, he said, "is in equally dramatic need of reform—hopefully before the baby boomers' mismanaged diaper budget gets out of control."

Medicaid fraud also poses challenges for Medicaid’s generous coverage of disposable incontinence supplies, the IG noted.

The IG released its report less than a week after the Justice Department charged the husband-and-wife owners of a Texas medical practice with fraudulently claiming more than $2 million in Medicaid expenses for incontinence supplies.

Each faces a 10-year prison sentence and a $250,000 fine if convicted.

The owner of a Maryland medical equipment company pled guilty in April to a charge of federal healthcare fraud after submitting false Medicaid reimbursement claims for $212,893 in incontinence supplies.

States that implemented competitive bidding programs in an effort to use a single vendor saw reduced opportunities for such fraud, the IG noted.

Competitive bidding "reduced opportunity for beneficiaries to fraudulently use multiple suppliers to obtain an excess of supplies," the report noted.

Six states—California, Illinois, New York, North Carolina, Pennsylvania, and Virginia—account for more than half of the potential savings that could be achieved by implementing competitive bidding practices, the IG found.

California alone could save $7.5 million per year on diapers, the report noted.