The runaway costs of skin substitutes for treating chronic wounds have experts and accountable care organizations (ACOs) sounding the alarm, and new rules targeting profiteering in the industry are now in limbo under the Trump administration.
Regulators at the Centers for Medicare & Medicaid Services (CMS) argue that some of these skin substitutes, many of them human-derived, are being misused and their costs inflated by legally murky reimbursement schemes. And ACOs have often been on the hook for the bill.
One of the "most egregious" claims was for a patient in Florida who accumulated $9.8 million in costs over the course of about a year, according to David Klebonis, chief operating officer at the Palm Beach Accountable Care Organization in West Palm Beach, Florida.
ACOs usually see costs in the millions for serious treatments, like long-term intensive care unit stays or transplant surgeries, Klebonis told MedPage Today. "But in this case..., millions of dollars are being spent at a relatively small marginal benefit" when a "reasonable alternative" could have been used.
While the patient's ACO was only responsible for the first $125,000 due to certain stop-loss measures under ACO rules, the rest was paid by Medicare, leaving taxpayers to ultimately foot a roughly $9.7 million bill, he noted.
Over 200 different kinds of cellular- and tissue-based products (CTPs) used as skin substitutes have surfaced in the last several years. The products are designed to imitate, replace, and repair damaged skin and are used to treat ulcers, bedsores, and other chronic wounds that have failed to heal through standard methods of care.
New CMS recommendations meant to curb overuse were set to take effect on Feb. 12, but the Trump administration issued a "freeze" on this guidance until April, and Trump himself has suggested the rules may be scrapped altogether.
Total revenue for skin substitutes in the U.S. has ballooned in the past 5 years, with an estimated increase from around $1 billion in 2019 to nearly $7 billion in 2024. In addition, total revenue for amniotic skin substitutes -- arguably the most advanced and expensive product -- jumped from just over $1 billion in 2022 to an estimated $5.5 billion in 2024.
Bad behavior in the industry has led to criminal charges as well. In one notable case, federal prosecutors charged two nurse practitioners along with an Arizona couple who owned two medical supply companies with Medicare fraud totaling $900 million, alleging that the defendants applied "unnecessary and extremely expensive" amniotic wound grafts and ignored proper treatment protocols. One of the owners also "instructed and financially incentivized" sales representatives to always order skin substitutes that were 4 × 6 cm or larger, even for small wounds, in an effort to maximize health insurance reimbursement. In January, the owners pleaded guilty to the charges.
Behind the Overuse, Abuse of Skin Substitutes
One reason the market for skin substitutes has grown is because many of these products are made from human tissue, said Caroline Fife, MD, chief medical officer for Intellicure, a health information technology company in The Woodlands, Texas, and executive director of the U.S. Wound Registry. They are "minimally manipulated" and intended for "homologous use," which means they aren't required to go through the FDA's premarket approval process and don't require clinical trials.
Each time a new product gets a new identification code, the companies set a new price. While some cost a few hundred dollars per square cm, the most expensive can cost over $4,000 per square cm, Fife explained.
Curiously, as Mervin Low, MD, a plastic surgeon and wound care specialist in Newport Beach, California, pointed out, there are only a handful of tissue banks in the country where skin substitutes are processed.
"And human placenta is human placenta ... So they might be identical products coming from the [same] tissue bank, but with just a different name and even perhaps a different price point," Low told MedPage Today.
This begs the question of why some products cost hundreds of dollars while others cost thousands for the same unit of product.
Fife believes she has an answer. Due to the rising cost of skin substitutes, CMS in 2015 established a new payment policy in which Medicare reimbursed hospital outpatient departments a single payment for both the purchase and provision of skin substitutes, she said. The "packaged" price ultimately set a cap on hospital reimbursement. For 2025, the maximum for skin substitutes in the "high-cost tier" is $1,800.
Because of low reimbursement, there are few products that hospitals can afford to buy and still break even, and they may sometimes lose money, explained Fife. Meanwhile, physicians' offices are still reimbursed two separate payments: one for the skin substitutes and the other for applying them -- the average sales price (ASP) plus 6%.
To grow their sales, wound care companies began selling their products to clinicians at steep discounts off the ASP. However, if an ASP is listed, clinicians are reimbursed the full amount by Medicare without having to invoice the program. Clinicians then pocket the difference.
While this practice might be considered a kickback, it falls into a legal "gray area," Fife told MedPage Today.
"But what I can say is the ability of physicians in an office ... to make a lot of money off the product itself was not what CMS intended," she said, pointing to a "direct correlation" between the increase in the use of skin substitutes and the amount clinicians could make.
Given that these products, particularly amniotic wound care products, are unlikely to be substantially different, companies are essentially "inventing the pricing, so their margin is massive," she noted. Some wound care companies even highlight the profits that purchasers can make off their discounts, or "spread pricing."
In one advertisement, Fife flagged in 2023, a skin substitute representative whose company name has been redacted boasts of a "high reimbursement amniotic membrane," with the potential to reap $128,320 in profits over 10 weeks for wounds smaller than the average index card. The ad specifically notes that "no invoice for billing" is required.
Skin substitute representatives have also left handwritten notes for physicians, detailing their product's reimbursement practice. In one note, provided to MedPage Today by Fife, Medicare would reimburse the provider $14,080, while the provider pays only $10,400 for the product, netting a $3,680 profit per weekly application -- that's $14,720 per patient per month.
These financial incentives have created a secondary problem in the wound care space: attracting a new wave of clinicians, some of whom lack appropriate training.
"This is really the domain of plastic surgeons," Low said. "If your only tool is a hammer, everything's going to look like a nail. And if your only tool is these grafts, everything's going to get a graft -- good or bad, indicated or not indicated."
He said that while he uses skin substitutes, he selects only those products with clinical evidence, and is careful to choose the "right wound" -- one that is appropriately prepared and will accept a graft -- and the "right patient." For example, a patient with a diabetic foot ulcer must have blood sugars in a normal range, good blood flow to the wound, and be able to stay off the foot to avoid reinjury.
However, in conducting chart reviews and observing treated patients, Low said he has seen wounds that are inappropriately prepared, products that are applied to the wrong patients, and decisions to use excessively expensive brands that lack clinical evidence.
He added that he has also observed that some clinicians will start grafting a wound and continue on "autopilot" for the next 10 or 12 weeks. His own practice is to place the skin substitute, then reassess the patient after 2 to 4 weeks.
"I've personally seen patients that have had large numbers of expensive grafts with little to no benefit and in some cases where the wounds get worse," he said. Some skin cancers, for example, can be mistaken for chronic wounds. Grafting over them can lead to a missed diagnosis and to the cancer spreading.
Still, skin substitutes work, Low acknowledged. "I think they're good for patients," and can prevent hospitalizations and amputations, he noted. "It's just drilling down on who should be using them, when to use them, and what to use."
Lori Lane, DPM, medical director of LA Medical Associates in West Palm Beach, who works alongside Klebonis at the Palm Beach Accountable Care Organization, also said she is prudent in choosing when to use skin substitutes and for which patients. When it comes to overuse and abuse, she blames CMS more than any alleged bad actor.
"Ethically, [clinicians] probably should choose the least expensive product to put on, but in their opinion, one product may work better than another," she told MedPage Today. "CMS failed here because there were no restrictions around these particular codes for a significant amount of time, and it led to abuse, because it was easy to do."
Regulators Intervene, Wound Companies Push Back
In responding to the dramatic increases in the use and cost of these products, Medicare administrative contractors (MACs) -- private insurers to whom CMS awards contracts regionally to process Medicare Part A and B claims and make coverage recommendations -- proposed local coverage determinations (LCDs) for skin substitutes/grafts and CTPs in April 2024.
The LCDs focused on two specific indications -- diabetic foot ulcers and venous leg ulcers -- and drastically limited the number and type of products recommended for coverage.
In November, all of the Medicare Part B MACs released final LCDs to provide guidance on the use of skin substitutes, with CMS noting that "coverage will be provided for skin substitute grafts/CTPs that have peer-reviewed, published evidence supporting their use as an adjunctive treatment for chronic ulcers shown to have failed established methods of healing."
The guidance limited coverage to 17 products for treating diabetic foot ulcers and venous leg ulcers based on a review of the scientific literature, and rejected coverage for 186 others. The LCDs also limited the number of applications to eight within a 12- to 16-week period and called for using products whose size is consistent with that of the wound.
During a virtual town hall in December, John McCallum, executive chairman of Vivex Biologics, a developer of amniotic membrane allografts, described the entire LCD approach as "misguided."
"Patients have benefited from these products for many years, and lack of [randomized controlled trial] data for these products has never been used as a rationale for non-coverage," he said. "The real issue is that skin substitute costs are escalating at an unsustainable rate. This is not a clinical data problem. It's a cost problem ... and these issues need to be resolved by policymakers on Capitol Hill, and not by accountants at the MACs."
ACOs Sound the Alarm
ACOs have been calling for CMS to take action and had originally pressed for a national coverage determination, since, by definition, they are held accountable for costs of care and quality and have little recourse for controlling their costs when providers make inappropriate care decisions.
Klebonis noted that when there are downstream clinicians "coloring outside the lines," it falls to the primary care provider to reach out for an explanation or to use a network of doctors and others who practice appropriate care.
"I think where the system breaks down is for patients that are not in an ACO" where skin substitute treatments "go on for an extended period" as a perceived "victimless crime," he said. "It's other people's money ... and the doctor says, 'it might as well go to me.'"
In October, Aisha Pittman, MPH, senior vice president of government affairs at the National Association of ACOs, said that despite flagging overuse of these costly skin substitutes, ACOs have few tools to combat the practice.
ACOs operate in the traditional Medicare space, which lacks utilization management tools, like prior authorization -- a tool common to Medicare Advantage, she said. So, there isn't a clear mechanism for ACOs to stop the overuse and misuse they've been seeing, apart from warning CMS and the HHS Office of the Inspector General.
Pittman recently told MedPage Today that the LCDs are a "step in the right direction." However, some members have said that because it applies to only two indications, she is concerned it "doesn't go far enough," she added.
While CMS did institute a rule to hold ACOs harmless for "significant, anomalous, and highly suspect" billing, it may not apply to skin substitutes since their overuse and abuse tend to be regional, and the rule only applies to broad national waste. Still, "overall, the policy that was finalized is positive and allows us to respond more quickly to future issues," Pittman said.
The agency also developed a "redetermination process" where ACOs can request a review of claims and a "mitigating factor" for potential fraud, waste, and abuse, which Pittman said she believes will help address more localized issues.
In November, the HHS Office of Inspector General announced plans to review Medicare Part B claims for skin substitutes to identify those "at risk for noncompliance" with Medicare requirements, with a report expected in 2026. However, President Trump fired HHS Inspector General Christi Grimm in late January.
Trump Administration Postpones New CMS Guidance
On Jan. 20, President Trump issued a memorandum calling for a "regulatory freeze" on agencies issuing "any rule in any manner" until an agency head has reviewed the rule. The memo also recommends agencies postpone the effective date of any rules published in the Federal Register for 60 days.
In a press release, the Medicare Access to Skin Substitutes (MASS) Coalition applauded the freeze and suggested it applied to the skin substitute LCDs.
The pause would also allow Medicare beneficiaries with diabetic foot ulcers and venous leg ulcers to "access needed treatments in order to avoid sepsis and amputations that can lead to increased costs to Medicare for lengthy in-hospital treatment, as well as premature death, for at least the next 2 months."
The coalition characterized the LCDs as "precisely the type of Biden-era behind-closed-doors regulatory action that the Freeze Order was intended to stop," and called for complete rescindment to avoid a "catastrophic treatment shortage."
Preeya Pinto, a partner at King & Spalding in Washington, D.C., who represents the MASS Coalition, told MedPage Today that if the current LCDs are implemented, 85% of wound products would not be covered, leaving only 15% of products to serve the entire Medicare population.
"And that's clearly not what the Trump administration wants to happen," Pinto said, adding that she's hopeful that by educating a new administration about these access concerns and the clinical evidence supporting these products, the coalition and the administration will reach a workable solution.
In a Truth Social post earlier this month, Trump shared a graphic suggesting the new CMS regulations would lead to more emergency department visits, amputations, and mortality for patients with diabetes; the illustration said "we must end this policy now."
"I don't have any inside knowledge as to whether the LCDs will be implemented on April 13," Fife said recently on her site. "However, if they are, I am confident it will not lead to an increase in diabetic amputations."
"Patients with DFUs [diabetic foot ulcers] will not be harmed by the implementation of the LCD(s) simply because the options for treating DFUs are limited to more than a dozen products with good clinical data," she added. "The LCDs will hurt the revenue stream for manufacturers whose products are priced more than 1,000% higher than the ones on the covered list (even though price was not a criterion for getting on the list)."
Appropriate Wound Care Matters
Even in the context of flagrant misuse and overuse, Fife stressed that a "crisis of chronic wounds" does exist in the U.S., with close to 17% of Medicare beneficiaries having non-healing wounds and most having more than one.
Whether skin substitutes are positively impacting that problem, however, is harder to quantify, she said.
Lane noted that "wound care is an evolving speciality that has a significant place in healthcare. It does save limbs. It does save lives. It does improve quality of life for patients."
"And when something like this happens, it kind of puts a bad mark on it," she said. "And it's frustrating for those who do it for the right reasons and do it the right way."
https://www.medpagetoday.com/special-reports/exclusives/114717
