Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICAID PAYMENTS FOR 

INCONTINENCE SUPPLIES 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services’ (HHS) 

programs as well as the health and welfare of beneficiaries served by those programs. This 

statutory mission is carried out through a nationwide network of audits, investigations, and 

inspections conducted by three OIG operating components: the Office of Audit Services, the 

Office of Investigations, and the Office of Evaluation and Inspections. The OIG also informs the 

Secretary of HHS of program and management problems and recommends courses to correct 

them. 

OFFICE OF AUDIT SERVICES 

The OIGS Office of Audit Services (OAS) provides all auditing services for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. 

Audits examine the performance of HHS programs and/or its grantees and contractors in carrying 

out their respective responsibilities and are intended to provide independent assessments of HHS 

programs and operations in order to reduce waste, abuse, and mismanagement and to promote 

economy and efficiency throughout the Department. 

OFFICE OF INVESTIGATIONS 

The OIGS Office of Investigations (01) conducts criminal, civil, and administrative investigations 

of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment 

by providers. The investigative efforts of 01 lead to criminal convictions, administrative sanctions, 

or civil money penalties. The 01 also oversees State Medicaid fraud control units which 

investigate and prosecute fraud and patient abuse in the Medicaid program. 

OFFICE OF EVALUATION AND INSPECTIONS 

The OIG’S Office of Evaluation and Inspections (OEI) conducts short-term management and 

program evaluations (called inspections) that focus on issues of concern to the Department, the 

Congress, and the public. The findings and recommendations contained in these inspection 

reports generate rapid, accurate, and up-to-date information on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

This report was prepared in the Philadelphia regional office under the direction of Robert A 

Vito, Regional Inspector General. Principal project staff 

REGION III HEADQUARTERS 

Robert A. Katz, Lead Analyst Stuart Wright, Program Analyst 

Robert A. Baiocco, Program Analyst 

Linda M. Ragone, Program Analyst 

Cynthia R. Hans[ord, Program Assistant 

REGION IV, OAS 

Bernard Rach, Project Leader 

Foradditionalcopies of this report, please contact the Philadelphia Regional Office at (800) 531-9562. 
EXECUTIVE SUMMARY 

PURPOSE 

This report provides information on inappropriate billings and payments for 

incontinence supplies in the Medicaid program. 

BACKGROUND 

The Medicaid program is jointly-funded by Federal and State Governments to provide 

medical care for low-income individuals. The program is administered by the Health 

Care Financing Administration (HCFA) under authority of Title XIX of the Social 

Security Act. In Fiscal Year 1993, Medicaid expenditures totaled approximately $126 

billion for 33 million recipients. 

The Medicaid program varies considerably in each State. Within broad national 

guidelines, States establish eligibility, coverage, claims processing, and payment 

policies. Some Medicaid recipients are eligible for Medicare in addition to their 

Medicaid coverage. In these instances, Medicare is the primary payer for covered 

services. In accordance with a State’s particular plan, Medicaid assumes responsibility 

for the recipients’ premiums, deductibles, and coinsurance. Payments made by 

Medicaid for these dually eligible individuals are called “crossover” payments. 

Incontinence is the inability to control urinary and bowel functions. Under the 

Medicaid program, States have the option to cover incontinence care supplies and 

related equipment. Based on prescriptions furnished by patients’ physicians, such 

supplies and equipment could include disposable pads, irrigation syringes, saline 

solutions, and collection devices. 

We recently reviewed Medicare payments for incontinence supplies. We found that


questionable billing practices may have accounted for almost $100 million or half of


incontinence allowances in 1993. We also found that suppliers engage in questionable


marketing practices to nursing homes and that Medicare beneficiaries may be


receiving unnecessary or noncovered supplies. We conducted this current review to


inform HCFA if similar practices existed in the Medicaid program. We concentrated


on 14 States which represent approximately 76 percent of 1993 Medicare payments for


incontinence supplies. 

This inspection was conducted as part of “Operation Restore Trust,” a pilot program 

that coordinates Federal, State, and local anti-fraud activity in five States. The 

program will target abuses in home health agencies, nursing facilities, and durable 

medical equipment, including incontinence supplies. 

i 
Half of the Statesin our sampleident@ed improperMedicaidbillingsfor incontinence 

supplies. 

Seven Medicaid State agencies encountered improper billings for incontinence 

devices and supplies. These States identified a wide variety of improper claims 

such as billings for recipients who were not incontinent, billings for supplies that 

were never delivered, and billings for excessive quantities of diapers for nursing 

home patients. Overpayment amounts identified included $107 million in 

California and almost $2 million in New York. 

Statesdo not genera~ reviewthe appropriatenessor necessityof incontinenceservices 

paid by them on crossover. 

States do not generally review the appropriateness or necessity of their 

crossover payments. Since Medicare, as the primary payer, has rndde the

payment determination, many States accept Medicare’s decisions as valid and 

do not question the propriety of such payments. 

Medicaredoes not requirecarriersto notijj MedicaidStateagenciesof improperMedicare 

are 

often unaware of improper crossover payments, and, as a result, may be unable 

to collect inappropriately paid Medicaid monies. 

P~ made on behalfof Me&aid beneficiaries. 

The Medicare program does not have guidelines requiring carriers to notify 

Medicaid State agencies of improper Medicare payments. Thus, States 

RECOMMENDATIONS 

We recommend that HCFA (1) alert Medicaid State agencies about this vulnerability 

regarding incontinence supplies, and (2) take appropriate steps to ensure that 

Medicaid State agencies are notified of improper Medicare payments which 

contractors discover have been made on behalf of a Medicaid beneficiary. 

While this report is limited to a review of Medicaid payments for incontinence

supplies, we believe that the problems identified associated with potentially improper 

crossover payments are not limited to these supplies. If Medicaid State agencies are 

not informed of the existence of improper Medicare payments on behalf of a 

Medicaid beneficiary, Medicaid is powerless to avoid or recoup the related improper 

Medicaid crossover payment. Thus, our second recommendation is applicable to all 

Medicare services provided to Medicaid recipients, not just incontinence supplies. 

We cannot precisely estimate the dollar savings to the Medicaid program that would 

result from implementing these recommendations, but, based on the information we 

have gathered it probably amounts to several million dollars per year. 

ii 
AGENCY COMMENTS AND OFFICE OF INSPE~OR GENERAL RESPONSE 

We appreciate HCFAS positive response to our recommendations. The HCFA plans 

to focus attention on this matter as part of their overall fraud and abuse prevention 

and detection strategy. Additionally, they plan to amend the Medicare Carriers 

Manual to require that carriers notify Medicaid State agencies about improper 

payments made on behalf of Medicaid beneficiaries. We support HCFA in these 

initiatives. The full text of HCFA’S comments can be found in Appendix A. 

.. .

111 
TABLE OF CONTENTS 

PAGE 

EXECUTIVE SUMMARY 

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

FINDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 

� Improper payments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..4 

� No review ofcrossover claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...4 

. No notification about improper Medicare payments . . . . . . . . . . . . . . . . . . . . . 6 

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . 

APPENDIX A 

HCFA Comments . . . . . . . . . . . . . . . . . . . . . . . . 

. . . . . . . . . . . . . . . . . . . . . . 7 

. . . . . . . . . . . . . . . . . . . . A-1 
INTRODUCTION 

PURPOSE 

This report provides information on inappropriate billings and payments for 

incontinence supplies in the Medicaid program. 

BACKGROUND 

lke MedicaidRcgram 

Medicaid is a jointly-funded health insurance program between Federal and State 

Governments to provide medical care for low-income individuals. The program is 

administered by the Health Care Financing Administration (HCFA) under authority of 

Title XIX of the Social Security Act. Nationally, Medicaid expenditures totaled 

approximately $126 billion for 33 million recipients in Fiscal Year 1993. 

The Medicaid program varies considerably from State to State. Within broad national 

guidelines, States establish eligibility standards, determine the scope of services, 

promulgate claims processing policies, and set payment rates for various medical 

services. Each State designs and manages its Medicaid program through a designated 

agency. 

In some cases, Medicaid recipients are eligible for Medicare in addition to their 

Medicaid coverage. In these instances, Medicare is the primary payer for covered 

services. After Medicare carriers process a claim for a dually eligible beneficiary, they 

send an electronic notification to the States. In accordance with a State’s particular 

plan, Medicaid assumes responsibility for the recipients’ premiums, deductibles, and 

coinsurance. Payments made by Medicaid for these dually eligible beneficiaries are 

called “crossover” payments. 

Inconkwce Supplies 

Incontinence is the inability of the body to control urinary and bowel functions. Under 

the Medicaid program, States have the option to cover incontinence care supplies and 

related equipment and accessories. Based on prescriptions furnished by patients’ 

physicians, such supplies and equipment could include disposable pads, irrigation 

syringes, saline solutions, and collection devices. 

CarrierClaimsI%ocessing 

In June 1992, HCFA issued a final rule designating four Durable Medical Equipment 

Regional Carriers (DMERCS) to process all claims for durable medical equipment, 

prosthetics, orthotics, and supplies. In October 1993, the DMERCS began replacing 

the 32 carriers which had previously processed DME claims. The geographical areas 

1

formerly serviced by the carriers were phased in under the DMERCS on a staggered 

basis. To ensure consistency in medical review policies, each DMERC issues identical 

coverage and reimbursement policies that implement Medicare guidelines. 

~ce of IiupectorGeneralStudieson IncontinenceSupplies 

We recently completed two studies on incontinence supplies provided to Medicare 

beneficiaries. One of these was entitled, Marketing OfIncontinence Supplies (OEI-03-

94-00770). We found that (1) information from nursing homes indicates that suppliers 

engage in questionable marketing practices, (2) beneficiaries may be receiving 

unnecessary or noncovered supplies, and (3) many nursing homes do not provide the 

Medicare-reimbursed supplies to the specific beneficiary for whom the supplies were 

billed. 

The second of these studies was entitled, Questionable Medicare Payments For 

continence Supplies (OEI-03-94-O0772). We found that (1) Medicare allowances 

more than doubled in 3 years despite a drop in the number of beneficiaries using 

incontinence supplies, (2) four types of incontinence supplies accounted for most of 

the increase in Medicare allowances, and (3) questionable billing practices may have 

accounted for almost $100 million or half of incontinence allowances in 1993. 

We then conducted a third study to determine if similar practices existed in the 

Medicaid program. This report is the result. 

OperationRestore Thst 

This inspection was conducted as part of “Operation Restore Trust,” a pilot program 

that coordinates Federal, State, and local anti-fraud activity in five States. The 

program will target abuses in home health agencies, nursing facilities, and DME 

equipment, including incontinence supplies. The project’s initial focus will be in 

California, Florida, Illinois, New York, and Texas. 

METHODOLOGY 

Since there is no national database of Medicaid payments for incontinence supplies 

and related accessories, we reviewed a sample of Medicaid State agencies based on 

Medicare utilization rates. We selected 14 States where incontinence payments under 

Medicare were the highest: Alabama, California, Florida, Georgia, Illinois, Louisiana, 

Massachusetts, Missouri, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, and 

Texas. These 14 States represent approximately 76 percent of 1993 Medicare 

payments for incontinence supplies. All five of the Operation Restore Trust States 

were included in our sample. 

We contacted the 14 Medicaid State agencies as well as the Medicaid Fraud Control 

Units in these States to determine (1) the extent of Medicaid payments, including 

crossover payments, and (2) improper payments for incontinence devices and supplies. 

2 
We also requested details of every reported fraud and abuse case. We received 

information from 13 of the 14 States sampled. All of the responding States cover 

incontinence supplies; however the coverage policies are not identical. 

To determine how overpayments in crossover claims are recovered, we contacted the 

Medicare contractor fraud units in carriers which cover geographical areas served by 

the Medicaid State agencies. These units oversee fraud and abuse detection and 

prevention activities within the carriers. We also contacted the fraud units in the four 

DMERCS for information. To determine if the responses from the fraud units were 

representative of overall carrier procedures, we also contacted carrier personnel 

involved in overpayment and recovery activities in general. In all, we received 

responses from 14 carriers and four DMERCS. 

This inspection was conducted in accordance with the Quali~ Standards for Inspections 

issued by the President’s Council on Integrity and Efficiency. 

3 
FINDINGS 

HALF OF THE STATES IDENTIFIED IMPROPER MEDICAID BBIJNGS FOR 

INCONTINENCE SUPPLIES. 

Seven of the 13 responding States had encountered improper billing practices for


incontinence devices and supplies. The seven States were California, Florida,


Louisiana, Massachusetts, New York, Ohio, and Pennsylvania. The States identified a


wide variety of improper billings, including: (1) billings for recipients with no


incontinence problems, (2) billings for supplies which were never delivered, (3) billings


for excessive quantities of diapers for nursing home patients (up to 600 a month in


some cases), and (4) billings for supplies which were already paid in a nursing home’s


daily rates. 

Payment amounts associated with these improper billings were not readily available in 

most States or could not be extracted from data including other types of supplies, such


as enteral and ostomy supplies. Two States could provide overpayment data for


incontinence supplies: The overpayment amounts were $107 million in California and


almost $2 million in New York.


Improperincontinencesupp~ billingswereso prevalentthat Calijiomiaoganized a special 

taskforce to attacktheproblem. 

The California Medicaid program (known as Medi-Cal) uncovered widespread fraud in


supplier billings for incontinence supplies. As a result, program officials organized a


special task force to combat the problem. Multiple suppliers using abusive and


fraudulent practices were identified. In one scheme, that some newspapers


characterized as “diaperscam,” unscrupulous suppliers went door to door enticing


Medicaid beneficiaries to provide their signatures and Medicaid identification numbers


in exchange for medical supplies. This practice enabled suppliers to bill Medi-Cal for


incontinence supplies for recipients who were not incontinent.


STATES DO NOT GENERALL Y REVIEW THE APPROPRIATENESS OR 

NECESSITY OF INCONTINENCE SERVICES PAID BY THEM ON 

CROSSOVER. 

In general, States do not review the appropriateness or necessity of their crossover 

payments. As primary payer for dually eligible individuals, Medicare determines


whether claimed services should be reimbursed. Needless to say, in such


circumstances, many States accept Medicare’s decisions as valid and do not question


the propriety of such payments.


Only one State had reviewed the appropriateness of Medicaid crossover payments for


incontinence supplies. Among the States that did not review crossover payments, four


maintained that Medicare was responsible for verifying the accuracy and integrity of


4 
these claims. Another four States reported they did not have the technological 

capability to target these claims for review. The remaining States indicated they had 

not conducted reviews of crossover incontinence claims since they had not identified 

aberrant billings or received complaints relating to incontinence supplies. One State 

representative said suppliers should be required to submit claims for crossover 

reimbursements directly to Medicaid agencies as this would put the States in a better 

position to determine the propriety of these payments. 

Crossoverpaymentscompriw a si*ant pvtion of totalMedicaidpaymen~ for 

incontinencesuppliixin sonw States. 

Of the three States that reported significant crossover payments for incontinence 

supplies, crossover payments were exceedingly larger than regular Medicaid payments 

for incontinence supplies. The table below compares Florida’s Medicaid crossover 

payments with regular Medicaid payments for incontinence supplies. Crossover 

payments exceeded regular Medicaid payments for three frequently billed incontinence 

supplies by more than $1.4 million. 

Florida Medicaid Payments for Three 

Imxmtinenee Sunnlv Cocks in Ikal Year 1994 

Irrigation syringes (A4322) I $10.458I $455.975 

Saline solutions (A4323) 40,365 851,349 

In Texas, more than $700,000 was paid in crossover payments for the three supplies 

listed above compared to $45,000 in Medicaid-only payments. Missouri reported 

crossover payments exceeding $430,000 for all incontinence supplies in Fiscal Year 

1994. 

Floridkhas initiateda reviinvof the appropriatenasof crossoverchims. 

The Florida Medicaid agency has recently initiated a plan to review crossover


payments for incontinence supplies. When the Medicaid agency was first contacted,


they advised us they did not conduct utilization reviews of crossover claims.


Furthermore, they said that no suppliers had been identified as submitting


questionable claims. However, after our initial contact, 18 suppliers were identified


for submitting questionable billings for incontinence supplies to the Florida Medicare


carrier. Potential overpayments to these suppliers totaled in excess of $60 million.


(The Florida carrier had accounted for over half of all incontinence allowances in 1993


as well as the bulk of questionable payments nationally.) The Medicaid agency had


reimbursed crossover claims for a number of these suppliers. Because of the large


5 
number of questionable billings to Medicare, a task force was formed to combat the 

problem. The task force will also address crossover claims. In addition, the Florida 

Medicaid agency has sent letters to recipients inquiring about their need for 

incontinence supplies and asking if they had received the supplies in question. 

MEDICARE DOES NOT REQUIRE CARRB3RS TO NOTIFY MEDICAID 

STATE AGENCIES OF IMPROPER MEDICARE PAYMENTS MADE ON 

BEHALF OF MEDICAID BENEFICIARIES. 

Medicare guidelines do not require carriers to notify Medicaid programs of the 

existence of Medicare overpayments. Only five of the 18 carriers and DMERCS which 

responded to our requests report that they routinely notify Medicaid State agencies 

when they learn of potential crossover overpayments. Only one of the four DMERCS 

routinely notifies Medicaid. Two other DMERCS notify Medicaid on an irregular 

basis. None of the responding carriers or DMERCS had written policies concerning 

the handling of crossover overpayments. 

Of the 18 carriers and DMERCS which responded to our requests for information, 17 

indicated they are not required by Medicare to notify Medicaid State agencies when 

they learn of potential crossover overpayments. Only one respondent said they were 

required to notify Medicaid State agencies. However, this requirement pertained only 

to Medicaid Fraud Control Units in suspected fraud cases, the respondent explained. 

The Medicare Carriers Manual and the Code of Federal Regulations (see 42 CFR 

405.375) contain provisions allowing Medicare contractors to withhold Medicare 

payments to recover Medicaid overpayments that a Medicaid agency has been unable 

to collect. However, if Medicaid agencies are not notified that crossover claims are 

potentially improper, they will be unable to initiate collection actions, including this 

mechanism to collect Medicaid overpayments. 

6 
RECOMMENDATIONS 

Our findings indicate that Medicaid is vulnerable to questionable billing practices for 

incontinence supplies. In one State, California, improper payments exceeded $100 

million. Other States experienced problems, but to a lesser degree. 

We also found that States do not generally review the appropriateness or necessity of 

incontinence services paid by Medicare, and that Medicare does not require 

contractors to notify Medicaid State agencies of improper crossover payments made 

on behalf of Medicaid beneficiaries. Thus, States may inadvertently make unallowable 

payments for Medicare copayments. 

We recommend that HCFA (1) alert Medicaid State agencies about this vulnerability 

regarding incontinence supplies, and (2) take appropriate steps to ensure that 

Medicaid State agencies are notified of improper Medicare payments which 

contractors discover have been made on behalf of a Medicaid beneficiary. 

While this report is limited to a review of Medicaid payments for incontinence 

supplies, we believe that the problems identified associated with potentially improper 

crossover payments are not limited to these supplies. If Medicaid State agencies are 

not informed of the existence of improper Medicare payments on behalf of a 

Medicaid beneficiary, Medicaid is powerless to avoid or recoup the related improper 

Medicaid crossover payment, Thus, our second recommendation is applicable to all 

Medicare services provided to Medicaid recipients, not just incontinence supplies. 

We cannot precisely estimate the dollar savings to the Medicaid program that would 

result from implementing these recommendations, but, based on the information we 

have gathered it probably amounts to several million dollars per year. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL RESPONSE 

We appreciate HCFA’S positive response to our recommendations. The HCFA plans 

to focus attention on this matter as part of their overall fraud and abuse prevention 

and detection strategy. Additionally, they plan to amend the Medicare Carriers 

Manual to require that carriers notify Medicaid State agencies about improper 

payments made on behalf of Medicaid beneficiaries. We support HCFA in these 

initiatives. The HCFA also provided a technical comment relating to how DMERCS 

develop national policies. We have revised our report in accordance with this 

comment. The full text of HCFA’S comments can be found in Appendix A. 

7 
APPENDIX A 

HCFA COMMENTS 

A-1 
Health Care Financing Administration (’HCFA) Comments on 

OffIce of Inspector General (OIG) Drafl Report: “Medicaid Pavments for Incontinence 

Supplies” (OEI-03-94-00771) 

OIG Recommendation 

OIG recommends that HCFA implement procedures to require Medicare contractors to 

notify the Medicaid State agencies on a routine basis of improper Medicare payments 

made on behalf of a Medicaid beneficiary. 

HCFA Response 

We concur. We will focus our attention on this particular problem as part of our overall 

fraud and abuse prevention and detection strategy. TOensure that Medicaid State 

agencies are made aware of improper Medicare payments a fraud alert regarding 

inappropriate billing for incontinence devices was sent to all Medicaid Fraud LJnk in 

March 1994. The Mediwe Carriers Manual will be amended to require that Medicare 

carriers not@ the Medicaid State agency on claims retroactively denied to enable 

Medicaid to recover its payment. MSO,we will require carriers to inform agencies to 

suspend payment after the claims are approved so as not to incur crossover payment. 

Technical Comments 

The report states that -h Dwble Medical E@pment Regional Carrier (DMERC) 

issues its own cov~e and reimbursement policies mat implement Medicare @delines. 

This is not entirely mmect. TOWmply witi tie D~RC con~ct for fis~ yw 1995, the 

DMERC medical directors am required to Mlltimte in the development of regional 

medieal review policies for IME, prosthetics,orthotics, am-l supplies.Thefind policies 

that are published by each of the DMERCS in their supplier bulletins must be identical. 

The DMERCS are required to publish identid Poficies to e~ure mnaistency in coverage 

determinations and avoid coverage variations across the four regional carriers.