Diabetes Continues to Become a Financial Burden on US Taxpayers
Summary: Diabetes is one of the most expensive chronic conditions in the U.S., driving avoidable medical spend through complications, hospitalizations, readmissions, high-cost drugs and devices, and operational churn across utilization management and payment integrity. For payers, the objective is not only better clinical outcomes—it is measurable cost containment: fewer preventable admissions, fewer high-cost complications, stronger medication adherence, and tighter controls on billing, coding, and device utilization.
Diabetes By the Numers: Why is it a Payer Priority for 2026 and Beyond
The American Diabetes Association (ADA) estimates the total annual cost of diagnosed diabetes in the U.S. at $412.9 (2022), including $306.6 in direct medical costs and $106.3 of indirect expenses (reduced productivity, etc.). This level of spend means that even modest improvements in prevention, adherence, admissions avoidance, and payment accuracy can translate into meaningful financial impact at the plan level. Independent summaries also continue to rank diabetes among the most expensive disease categories in the U.S., reinforcing why payer organizations repeatedly treat it as a “top-of-book” cost-containment target (medical + pharmacy + downstream complications).
Sources: Newsroom Article on Diabetes, PriceSchool Article on Diabetes
What makes diabetes so expensive (for payers)
Diabetes costs are not a “one-line item.” It compounds through predictable pathways:
- Acute events (ED visits, admissions, readmissions)
- Chronic complications (renal, cardiovascular, neuropathy, wounds/amputations, vision)
- High-cost pharmacy (insulins, GLP-1s where applicable, adjunct therapies)
- High-cost devices/DME (CGMs, pumps, test strips, supplies)
- Frictional admin cost (prior auth, appeals, care management load, provider abrasion)
The CDC continues to characterize diabetes as a significant cost driver, with prevalence patterns that vary by population. This matters because risk pools and local demographics can dramatically change total cost exposure from one plan to the next.
Source:
CDC Article on Diabetes
Diabetes looks different per Line of Business for Payers
Diabetes cost and compliance risk vary significantly by line of business, requiring payer strategies tailored to population dynamics. In Medicare Advantage, diabetes drives risk adjustment exposure, RADV audit findings, and device utilization scrutiny. Medicaid programs face higher exposure tied to access barriers, education services, and third-party vendor arrangements. Commercial plans face rising pharmacy and DME spend amid greater employer oversight. A one-size-fits-all diabetes strategy fails because audit risk, utilization patterns, and financial materiality differ across populations.
Appeals, Provider Abrasion, and Hidden Costs
Diabetes-related claims generate a disproportionate volume of appeals, reconsiderations, and provider disputes due to complex coding pathways, frequent services, and evolving coverage criteria. Each appealed claim adds administrative cost—often exceeding the original claim value—while increasing provider abrasion and regulator visibility. Studies show that appeals processing costs can range from $25 to over $100 per claim, turning weak policy clarity into compounding operational expense. For payers, inconsistent diabetes adjudication does not merely increase overpayment risk; it drives unnecessary administrative spend and weakens audit defensibility.
Cost Containment levers that consistently move the needle
Our 30-year history and 170+ clients have shown that these four possible levers could help both the patient and reduce overall diabetes healthcare costs:
Prevent admissions before they happen
Payers typically see the largest controllable savings by preventing avoidable ED utilization and hospitalizations tied to poor glycemic control, medication nonadherence, and delayed follow-up. The operational key is speed: identify rising-risk members early enough to intervene.
Reduce complication progression
Complications (renal failure, amputations, CHF events) are where diabetes “breaks the budget.” A payer diabetes program should be evaluated on downstream outcomes (admissions per 1,000, avoidable complications, total cost trend), not just engagement.
Tighten device and supply utilization management
CGMs, pumps, and supplies can be highly effective—but plans need utilization rules, documentation standards, refill logic, and outlier monitoring so spend matches clinical need and policy.
Improve payment accuracy (coding + policy alignment)
When coding and documentation quality is inconsistent, plans pay more—and then spend again on audits, appeals, and provider disputes. This is where strong internal payment integrity operations, supported by automation, produces compounding savings year over year.
The Fraud, Waste, and Abuse of Diabetes Care
Diabetes Fraud is Costly but also a sensitive issue
Diabetes is not inherently a fraud-prone diagnosis, but its chronic nature, high service frequency, expensive devices, and complex coding pathways create predictable exposure points. These risk areas consistently surface in payer audits, OIG reviews, and DOJ investigations—not because of one provider type, but because diabetes care touches DME, pharmacy, labs, E/M services, education programs, and risk adjustment simultaneously. For payer organizations, the risk is less about intentional misconduct and more about systemic overpayment driven by weak controls, inconsistent documentation standards, and fragmented review processes.
Insulin, GLP-1s, and Adherence vs. Waste
While medical costs for diabetes often dominate discussions, pharmacy spend represents an equally material and faster-growing exposure. The American Diabetes Association estimates that prescription medications account for nearly one-third of all diabetes-related direct medical costs, driven by insulin pricing variability and the rapid expansion of GLP-1 utilization. For payers, the challenge is not simply cost containment but distinguishing appropriate therapy from waste—fills without adherence, off-label utilization, and continuation of high-cost drugs without documented clinical benefit. Without aligned medical and pharmacy governance, diabetes pharmacy spend quietly compounds the total cost of care.
Source: Diabetes Newsroom Article
Common Diabetes-Related FWA Patterns Seen in Payer Audits
Diabetes devices represent one of the fastest-growing cost categories—and one of the least consistently governed. Overutilization often stems from weak refill controls, incomplete documentation, or standing orders that are never revalidated. The following categories represent repeatable vulnerability patterns that payment integrity teams encounter across commercial, Medicare Advantage, Medicaid, and PACE populations.
DME and Device Overutilization (CGMs, Pumps, Supplies)
Summary:
Diabetes devices represent one of the fastest-growing cost categories—and one of the least consistently governed. Overutilization often stems from weak refill controls, incomplete documentation, or standing orders that are never revalidated.
Deeper Dive:
Common findings include continuous glucose monitor (CGM) supplies billed at maximum allowable frequency regardless of documented usage, insulin pump supplies refilled without confirmation of ongoing eligibility, and DME claims lacking proof of medical necessity tied to coverage criteria. In some audits, device utilization continues even when patients transition off insulin therapy or fail to meet coverage thresholds, creating silent but compounding overpayments.
Excessive Testing and Visit Frequency
Summary:
Testing frequency and visit cadence frequently exceed what is clinically reasonable for the member’s documented risk profile.
Deeper Dive:
Examples include high-frequency HbA1c testing without documented treatment changes, repeated outpatient visits billed as problem-focused E/M services without new findings, and diabetes education encounters billed multiple times without evidence of progressive instruction. These patterns often arise from default scheduling practices or automated ordering rather than deliberate abuse, but they still represent recoverable overpayments.
Upcoding and Unsupported Risk Adjustment
Summary:
Risk adjustment exposure is one of the most financially material diabetes-related risks for Medicare Advantage and managed Medicaid plans.
Deeper Dive:
Common issues include diabetes with complications being coded without clear documentation linking the condition to the complication, chronic kidney disease stages auto-carried forward without current clinical support, and insulin dependence coded in members no longer receiving insulin. Unsupported Hierarchical Condition Category (HCC) submissions increase short-term revenue but significantly elevate audit and clawback risk when not defensible.
Duplicate, Overlapping, or Unbundled Billing
Summary:
Diabetes care often involves multiple services rendered during the same encounter, creating frequent opportunities for duplicate or unbundled billing.
Deeper Dive:
Examples include separate billing for diabetes education and E/M services without modifier support, lab services billed individually when bundled panels apply, and repeat claims submitted for services already reimbursed under global or capitated arrangements. These issues are especially common when services are rendered across multiple departments or vendors without unified claims oversight.
Improper Use of Education and Self-Management Codes
Summary:
Diabetes self-management training (DSMT) and education services are valuable but frequently miscoded.
Deeper Dive:
Audit findings often include education codes billed without proof of referral, exceeding annual unit limits, or provided by individuals who do not meet credentialing requirements. In some cases, education services are billed as standalone revenue rather than part of an integrated care plan, increasing denial and recoupment exposure.
The Unknown Diabetes Marketing Fraud Connection
Many diabetes management programs rely on third parties—educators, digital coaching platforms, DME suppliers, call centers, or outreach vendors—to drive engagement. Compliance risk emerges when these relationships are structured around volume, conversions, or device adoption rather than patient-specific clinical need. Red flags include referral patterns that closely mirror marketing campaigns, sudden spikes in CGM or pump utilization without corresponding changes in member acuity, and vendor compensation models tied—directly or indirectly—to utilization outcomes.
Even in the absence of fraudulent intent, these arrangements can trigger Anti-Kickback Statute (AKS) exposure if financial incentives influence ordering, referrals, or treatment intensity. From a payer standpoint, the risk is operational as much as legal: inadequate oversight of vendor behavior, weak medical necessity controls, and limited visibility into marketing-driven utilization can convert well-intentioned diabetes programs into audit-exposed risk pools.
What “Good” Diabetes Cost Governance Looks Like for Payers
Effective diabetes cost containment is operational, not punitive. Strong payer programs are built on clearly documented coverage policies, standardized utilization thresholds, defensible refill logic, and aligned clinical and claims review workflows. Plans that invest in consistent adjudication logic reduce both overpayment risk and downstream appeals, while improving regulator confidence and provider relationships. The most sustainable savings come from predictable governance—not reactive denials—allowing payers to control diabetes spend while maintaining compliance integrity.
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About PCG
For over 30 years, PCG Software Inc. has been a leader in AI-powered medical coding solutions, helping Health Plans, MSOs, IPAs, TPAs, and Health Systems save millions annually by reducing costs, fraud, waste, abuse, and improving claims and compliance department efficiencies. Our innovative software solutions include Virtual Examiner® for Payers, VEWS™ for Payers and Billing Software integrations, and iVECoder® for clinics.
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