By Jim Hoover
Over the past 18 months, regulatory oversight, government investigations and recoupment actions relating to wound care, generally, and skin substitutes, specifically, have increased dramatically. A combination of the United States Department of Justice (DOJ), U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG), and Centers for Medicare & Medicaid Services (CMS) have all targeted wound care practices nationwide regarding potential fraud and abuse. Additionally, many providers across the country have been receiving Unified Program Integrity Contractor (UPIC) Notices of Overpayments based upon audits of wound therapy and/or skin substitute claims. A UPIC is a contractor of CMS that performs program safeguard functions for the Medicare program including medical review, cost report auditing, data analysis, fraud detection, and prevention.
The dramatic increase in recoupment actions and/or fraud investigations are all directly tied to a recent HHS-OIG (OIG) report titled “Medicare Part B Payment Trends for Skin Substitutes Raise Major Concerns About Fraud, Waste, and Abuse.” This report outlines the OIG’s review of Medicare billing data for skin substitute products. The report indicates that Medicare spent approximately $400 million on skin substitutes in 2022 to over $10 billion in 2024, allegedly caused by over utilization and high reimbursement rates. The report highlighted certain utilization patterns and potential outlier billings such as the consistent use of skin substitutes on a patient’s first visit without any prior attempt at conservative treatment; the products’ use for non-approved conditions or at excessive quantities for a given condition; and the four-fold increase in spending for home care patients compared to those treated in an office setting.
For example, UPIC Notices of Overpayment often involve allegations that the provider engaged in aberrant billing patterns resulting in hundreds of thousands of dollars of overpayments. For example, a recent UPIC audit received by a client alleged an overpayment of more than $800,000. In response, the practitioner provided thousands of pages of medical records, including photographs, detailed wound descriptions and extensive patient history and physicals. Nonetheless, the decision was upheld at the redetermination stage of the appeal process. Although the appeal process is ongoing, as with the instant case and notwithstanding the production of voluminous medical records, the Notices of Overpayment typically justify the allegations of overpayments on generic grounds such as the documentation did not support the medical necessity for the services billed pursuant to Medicare guidelines.
Relevant to Alabama providers, Palmetto drafted a Local Coverage Determination (LCD) for skin substitutes for diabetic foot ulcers (DFU) and venous leg ulcers (VLU) effective January 1, 2026 to address the overwhelming explosion in payments for skin substitutes. However, the LCD was withdrawn by the A/B Medicare Administrative Contractor (MAC) just before the effective date. As a result, no new LCD coverage rules are currently in effect for Part B Medicare beneficiaries. Thus, existing coverage determinations continue to be evaluated on a case-by-case basis under medical necessity standards, and documentation requirements remain unchanged.
However, even though the LCD was withdrawn, the 2026 Medicare Physician Fee Schedule (PFS) changes remain in effect. Skin substitutes are now classified as incident-to supplies rather than biologics in non-facility settings and payment is based upon a flat-rate at approximately $127 per square centimeter, down from the previous ASP+6 percent model, which could exceed $2,000 per square centimeter. This change is expected to reduce Medicare spending on skin substitutes by nearly 90 percent.
What do all these actions mean for wound care providers? Providers must review product selection very carefully since many of the previously-used skin substitutes are no longer covered by Medicare. The practitioner’s billing and documentation must align with the new flat-rate payment structure. Wound care centers using non-covered products may need to adjust treatment protocols or seek alternative covered products. Most importantly, clinical decisions should continue to be guided by medical necessity and patient-specific factors, as coverage is evaluated individually.
In summary, while skin substitutes remain clinically important for wound healing, CMS has withdrawn the new LCDs, leaving coverage decisions under existing policies, and has implemented significant reimbursement reductions. Providers should stay informed about MAC-specific policies and evidence requirements to ensure compliance and optimize patient care.
Jim Hoover is a health care trial and compliance Partner at Burr & Forman LLP practicing exclusively in the firm’s health care group. Jim may be reached by telephone at (205) 458-5111 or by E-mail at jhoover@burr.com.