HHS-OIG's Latest Wound Care Report Warrants Careful Scrutiny

On September 9, the U.S. Department of Health and Human Services Office of the Inspector General (HHS-OIG) released a major report (Report) regarding the fraud risks currently associated with skin substitute products billed to Medicare.

Notably, Medicare Part B expenditures for skin substitutes have surged dramatically, surpassing $10 billion annually by the end of 2024. The Report notes that this increase raises significant concerns about fraud, waste, and abuse within the Medicare system, and urges reform in payment structures for these products and increased enforcement actions.

Explosive Growth in Spending and Utilization

HHS-OIG found that between 2023 and 2024, Part B spending on skin substitutes skyrocketed from approximately $400 million to nearly $3 billion per quarter. This growth is driven by both increased utilization—53% more enrollees with claims and an 83% increase in units billed per enrollee—and rising prices, with average payment per unit increasing by 153%. Home care settings in particular saw disproportionate growth, accounting for over half of Part B spending by the third quarter of 2024, with home-treated patients receiving 2.6 times more units and more expensive products compared to office-treated patients.

Stark Contrast Between Medicare Part B and Medicare Advantage Spending

Despite more than half of Medicare enrollees being covered under Medicare Advantage (MA) plans in 2024, only a fraction of skin substitute claims and spending occurred under MA. In the third quarter of 2024, MA had 3,800 enrollees with skin substitute claims versus 24,000 in Part B, with MA providers billing fewer units per patient (69 vs. 82) and using less costly products ($730 vs. $1,470). Consequently, MA spending represented just 7% of Part B spending ($192 million vs. $2.9 billion). HHS-OIG attributed this disparity largely to MA plans' ability to negotiate reimbursement rates and implement utilization management tools such as prior authorization.

Rapid Shifts in Provider Preferences and Product Expenditures

Unlike other Part B drugs, HHS-OIG found that the highest-expenditure skin substitutes change rapidly as new products enter the market. For example, three top skin substitutes in 2023 each saw their Medicare expenditures rise and fall by hundreds of millions of dollars within their first few quarters on the market. HHS-OIG attributes these fluctuations to payment timing and manipulation, leading to heightened scrutiny of what HHS-OIG deems "investigational skin substitutes." Medicare generally reimburses providers in non-institutional settings at 106% of the average sales price (ASP). ASP is calculated quarterly based on manufacturers' reported sales data. When ASP data is unavailable, however, Medicare relies on wholesale acquisition costs (WACs) or payment invoices, which are sometimes higher than ASPs. Simply put, this payment system creates a "spread" between Medicare reimbursement and providers' actual acquisition costs, which arguably incentivizes providers to pick products with higher spreads and bill for more units, unnecessarily.

HHS-OIG alleges that this fluctuation in pricing results from a cycling of new products every few months so that manufacturers can maintain higher reimbursement before the ASP is triggered. HHS-OIG argues that this payment system creates a "spread" between Medicare reimbursement and providers' acquisition costs, which incentivizes providers to choose products with higher spreads and bill for more units.

Despite these concerns, however, there are a wide range of reasons that providers utilize different skin substitute products that are directly related to the patients' unique medical needs and not potential reimbursement. Nonetheless, providers should adequately document any reasons for altering the treatment plan, including decisions to change the skin substitute utilized, among other things.

Vulnerability to Fraud and Questionable Billing Practices

HHS-OIG identifies numerous alleged fraud schemes involving skin substitutes, including cases where providers bill for excessive quantities, use skin substitutes for non-approved conditions, or submit multiple claims to circumvent Medicare limits. Thus, HHS-OIG has observed several "concerning" trends in ongoing investigations. In particular, these trends include:

• New providers for whom almost 100% of their claims are for skin substitutes, with no other associated wound care management
• A provider's consistent utilization of skin substitutes during an enrollee's first visit without attempting prior conservative treatments
• Provider specialties that appear out of scope for the treatment (e.g., a neurologist or psychiatrist billing for skin substitutes), among others.

In response HHS-OIG has called for payment reforms to curb fraud, waste, and abuse while ensuring appropriate patient care. Policymakers are urged to consider alternative payment methods for these products, potentially learn from MA's management strategies, and evaluate whether skin substitutes should continue to be treated as drugs and biologics under Medicare Part B at all.

An Unbalanced Perspective

The Report presents a one-sided view, overlooking the practical realities and complexities inherent in this area of practice. Often, the providers at issue are specialists who are referred by the patient's primary care physician after the traditional standard of care and other methods for wound care have failed. These specialists often step in only when the wounds have not been responsive to less aggressive methods. And, although there are undoubtedly some doctors who are inappropriately providing care to wound care patients, many of the doctors facing scrutiny are experts in this very complex and nuanced field, not neurologists or psychiatrists as the Report would suggest.

Notably, in some instances, the experts retained by the government have less medical training and experience than the doctors whose work they are tasked with reviewing. Thus, despite the government's stated intentions, these audits and investigations often amount to little more than challenges to the clinicians' sound medical judgment, rather than true findings of fraud or abuse. In such instances, practitioners often find it difficult to surmount the government's skepticism regarding the services provided—especially where "preventative" measures, such as payment suspensions, are imposed, carrying significant implications for providers' practices and livelihoods.

Key Takeaways

As demonstrated in the Report, regulators are expected to continue to highly scrutinize wound care practices. Providers can, however, take targeted steps to mitigate audit risk and strengthen reimbursement outcomes when utilizing skin substitutes.

• Ensure Comprehensive Documentation: Documentation should be detailed and clearly support medical necessity—particularly when advanced or newly developed products, such as cellular or tissue-based grafts, are used and the supporting research base remains limited.
• Justify Extended Treatment: Each patient's chart should clearly explain why standard care was insufficient and why ongoing treatment was required. Providers should also note that the proposed Local Coverage Determinations (LCDs), scheduled to take effect on January 1, 2026, limit coverage to eight applications of skin substitutes within a 16-week treatment period. While these LCDs are not yet in force, providers would be prudent to clearly document support for extended use of skin substitutes beyond eight applications, where applicable.
• Strengthen Compliance Controls: Regular internal audits of high-risk billing codes, familiarity with current and proposed LCDs, and ongoing monitoring of Medicare's evolving regulations will be critical to mitigating enforcement exposure and maximizing reimbursement.

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